<t>On Z-spread:To price a bond using z-spread, you would add a constant spread to your choice of interest-rate curve along all its cashflow points. Z-spread is that fixed spread that would make the bond price equal to its given market price. It is like OAS, but with zero-volatility. Hence the name z...

<t>The relationship between the equity/put and default based credit market instruments is subject to many variables (and different market technicals) to rely on general models or simplified trading strategies.Any study of such relationships should first involve a detailed look at the impact of bankr...

<t>BullBear has answered this very well!I will just add a few notes that might be useful: Only model-independent way of calculating mark to market changes in CDS means that PRICE as opposed to SPREAD would have to be the quoted parameter. (Some indices are already priced this way). Perhaps, in futur...

<t>This oath sounds like a Catholic confession! Yes, financial models are built on many many assumptions. We knew that all along. We knew that a model result is nothing more than an estimate under wildly simplified assumptions. Even with good models, garbage in is garbage out. Nothing new here. Fina...

Do you mean research similar to investigation of Fed model or similar models?

<t>Good comments!I just wanted to add that, when calculating the risk for bonds, be careful not to treat them like equity.Unlike equity, the bonds have an upper bound (sum of its un-discounted cashflows). More importantly, at such low prices, convexity (gamma) impact on price will take a large share...

<t>If you are trading the junior tranches, the risk you have primarily comes from tail risk names. In that case, you should use the real spreads of these names to find the real cost of hedging the junior tranches. It is the opposite for senior tranches. There, you can use a parallel translation. If ...

<t>the answer depends. - If you are using credit ratings for pricing purposes, you are wrong. Credit ratings are not meant for that. - If you are using them for calculating the probability of downgrade, credit ratings are not useful. - For estimating the actuarial default rates, credit ratings shoul...

It takes more than an abstract thesis to direct capital and labour away from finance to engineering.Perhaps, bigger wars and/or significant drop in wealth. Otherwise, this will remain in words only. And we, physical engineers, will continue to work in finance.

it is a good idea to create an exchange for CDS.It is a bad idea to leave it to Citadel. Why would their competitors trust Citadel?

You have the right to terminate your contract. Just send a notice to Lehman.If you have posted collateral, you would get in the line to get it back (Coll Value - MtM on contract).

p&l. and anything that affects it.

<t>If you have the monthly spread series, use that first to see if it is close enough to have a normal distribution. If so, calculate the spread volatility and then compute the spread risk VaR. If you can ignore the other sources of risk (interest rate, volatility, prepayment ), this should be enoug...

<t>I will try to answer why China is buying so much of US debt.China probably wants to have leverage against the power of United States. Europe is no more a World power. Why invest the surplus in Euros? Keeping the US debt in its inventory, China hedges itself against a large spectrum of political a...

There is no meaning to life.You are born, you live, you die. Some memories of you remain a while. Eventually they disappear too.