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gian75
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Joined: June 19th, 2012, 12:04 pm

Proxy for CDS spread

June 21st, 2012, 8:30 am

Hi allI am trying to come up with an indicative spreads for a bilateral CDS (or financial guarantee) for a name on which there is no traded CDS in the market. I have a 5-yr bond and I have calculated Z-Spread / ASW. Question: in oder to consider the funded nature of the bond and unfunded nature of CDS/FinGuarantee, shall I deduct the funding spread of my bank (or at least funding spread of my counterparty) in order to arrive at a fair spread for buying protection?Thanks!!
 
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Nordsmate
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Joined: November 21st, 2005, 7:43 am

Proxy for CDS spread

June 21st, 2012, 1:41 pm

you should use the repo rate of the bond, as that's the real cost of funding the bond. If there's no repo market, then some average funding level is probably appropriate