Boot strap hazard rate term structure from CDS spreads

georgeb · November 26th, 2014, 12:43 pm

Hi All,I am new member to this group .Looking for the below informationI need some information regarding boot strapping of hazard rate term structure from CDS spreads. I have the CDS Quotes available for 1,3,5,7,10 years and need to understand how to bootstrap the hazard rate. Its done in one of my projects but its not transparent as the logic sits within QA calls. We are given with CDS Quotes, Recovery Rate .Has any one got some excel on the same.Thanks in advance

daveangel · November 26th, 2014, 1:41 pm

what are QA calls ?

georgeb · November 26th, 2014, 1:47 pm

QA Calls -- quantitative analytic library calls . These are APIs provided by the quantitative analytics team

georgeb · November 26th, 2014, 1:47 pm

QA Calls -- quantitative analytic library calls . These are APIs provided by the quantitative analytics team

daveangel · November 26th, 2014, 1:55 pm

i see. conceptually it is relatively straightforward. First you need to a model that values a CDS using hazard rates - for example I would look at the Hull paper. Once you have that, then it is a matter of implementing the usual bootstrap methodology. you could work with piecewise constant hazard rates or something fancier.

kelang · November 26th, 2014, 3:40 pm

check there http://www.cdsmodel.com/cdsmodel/they also give excel pricing tools.QuoteOriginally posted by: georgebHi All,I am new member to this group .Looking for the below informationI need some information regarding boot strapping of hazard rate term structure from CDS spreads. I have the CDS Quotes available for 1,3,5,7,10 years and need to understand how to bootstrap the hazard rate. Its done in one of my projects but its not transparent as the logic sits within QA calls. We are given with CDS Quotes, Recovery Rate .Has any one got some excel on the same.Thanks in advance

georgeb · November 26th, 2014, 11:26 pm

Thanks. As per Hull model we need to first calculate the Survival Probability for each year and then derive Hazard rates. How do we derive the survival probability for each year from CDS Spread ? If any one has got any excel that would be really helpful

daveangel · November 27th, 2014, 5:25 am

QuoteOriginally posted by: georgebThanks. As per Hull model we need to first calculate the Survival Probability for each year and then derive Hazard rates. How do we derive the survival probability for each year from CDS Spread ? If any one has got any excel that would be really helpfulthe HUll paper has all the information you need.