<t>what i mean is a default is going to have a big impact on the p/l whether the trader is long or short the name. in IR, there's no default risk - libor/swap rates are the risk-free benchmark rates everybody uses (i'm not considering counterparty risk here, which is negligible anyway). so in other ...

<t>i think there's a big misunderstanding here.base correlation does not mean you have to use the average index spread in your model. in fact, you can enter into your model full cds curvesof all the names in your portfolio. this is the "heterogeneous" model that everyone uses on the street. nobody b...

<t>there is a big difference between the credit and IR world. in credit you're more concerned about idiosyncratic risk - this is what's going to drive your p/l. plus since 95% of the market is in 5y cds, you don't really worry about exposure along the curve. of course, cds traders trade corporate bo...

borh markit.com as well as dow jones websites should have info on all the indices. of course once you have the names, the more difficult part is getting the data!

<t>you can think about this in terms of idiosyncratic vs systemic risk. equity tranches (typically those whose lower attachment point is below the EL of the portfolio for example 0-3% and 3-7% if the expected loss of the portfolio is 8%) are short idiosyncratic risk and long systemic risk and vice-v...

<t>i think typically you would interpolate the index base correlation levels for the attachment points in your bespoke tranche. if the portfolio is sufficiently different from the index you would tweak them a bit. obviously, pricing an airline ftd you would have to use a different approach from a po...

<t>it's a simple calculation. basically the notional and duration weighted sum of all the tranche spreads must equal the index spread. you don't need a model to do this calculation. however, the caveat here is that you need to turn the equity upfront into all spread form which means you need to know...

<t>The spread on GMAC is going to be a function of the likelihood of the spinoff from GM i.e. 0 likelihood means GMAC spread equals GM, 100% likelihood GMAC spread will trade around 100bps or so. you have to consider a couple of things here. whether gm will sell rescap first and if they do what does...

<t>The spread on GMAC is going to be a function of the likelihood of the spinoff from GM i.e. 0 likelihood means GMAC spread equals GM, 100% likelihood GMAC spread will trade around 100bps or so. you have to consider a couple of things here. whether gm will sell rescap first and if they do what does...

<t>couple of points there:you will always see the biggest movement in equity in these scenarios. equity tranches are most sensitive to the few widest names (like GM) so they will be driven by names like GM. Mezz has been tightening for a while though I don't think it's too tight at this point. There...

<t>you would be hard pressed to find any data on cds options. they are not very liquid instruments. also, cds spreads are traded in the market. they are not calculated by anyone. if you're talking about merton model type calculations that's something different. these models take balance sheet and eq...

<t>the 30-100 spread can be calculated synthetically. basically the duration and notional weighted sum of tranche spreads should equal the index spread. this is true since you should have the same amount of risk in the index as you do if you bought all the tranches on the index. you should get a spr...

<t>i would look at the sensitivites as well. make sure for example that the theta on the equity tranche is the lowest among all the tranches (since they have all the gap risk - similar concept as the vol skew going up as maturity of option approaches). also look at deltas - equity deltas have to be ...

<t>markit is very good in my experience. they get the data from all the dealers and run stat methods to clean it up (remove stale curve submissions). they also show the curves from 1 to 30 years although you have to take that with a grain of salt since nothing above 10y ever trades. also for some of...

I wouldn't expect either one of them to change very much considering that rating agencies are usually behind the curve on this. Also, cds options are illiquid so they would really only change in the sense of traders marking the vol curves a little bit higher.