November 23rd, 2011, 2:24 pm
In an illiquid CDS market the inferences drawn from the implied hazard rates are just approximations, so you can use simple mid-values. If certain parts of the curve are missing, just fill them in as a flat-rate or interpolate or use some educated guess.Even otherwise, it's good to maintain a margin of safety so if the credit trade (buy/sell CDS) is to be used as a hedge, you should take the worse of the bid/offer for your purpose.
Last edited by
HNK on November 22nd, 2011, 11:00 pm, edited 1 time in total.