Bi-Lateral C-CDS is not uncommon, especially in EMG. They are much easier to price. Just adjust the risk free DFS for each cash flow by the SurvProbs.

Bi-Lateral C-CDS is not uncommon, especially in EMG. They are much easier to price. Just adjust the risk free DFS for each cash flow by the SurvProbs.

<t>One simple way to think about the convexity adjustment has to do with the fact that the payout of the CMS swap is linear with respect to changes in the swap rate but the instruments that you use to hedge (the swaps themselves) are convex. In other words the DV01 of the CMS does not change as the ...