Defining, Estimating and Using Credit Term Structures. Part 3: Consistent CDS-Bond Basis
Pricing of Securities
2009-12-24 v1
Abstract
In the third part of this series we introduce consistent relative value measures for CDS-Bond basis trades using the bond-implied CDS term structure derived from fitted survival rate curves. We explain why this measure is better than the traditionally used Z-spread or Libor OAS and offer simplified hedging and trading strategies which take advantage of the relative value across the entire range of maturities of cash and synthetic credit markets.
Cite
@article{arxiv.0912.4618,
title = {Defining, Estimating and Using Credit Term Structures. Part 3: Consistent CDS-Bond Basis},
author = {Arthur M. Berd and Roy Mashal and Peili Wang},
journal= {arXiv preprint arXiv:0912.4618},
year = {2009}
}
Comments
20 pages, 6 figures