Hi All,
I know how to bootstrap hazard rate for a standard CDS using a CDS spread term structure. When I am looking to bootstrap hazard rate for a CDX index lets say CDX NA IG 25 10 yr index, what is the right way to come up with the hazard rates.
1) Do I just use the spread for the above index and a tenor = 10 - valuation date ; or
2) Should I use a term structure of CDXNAIG25 index, so using 3y,5y,7y, and 10y spreads and then bootstrap hazard rates for a regular CDS. If I were to go this route, I would have to adjust the tenors by -> tenor- valuation date, right ?
When I looked at Markit Standard Calculator online, it just creates a flat spread credit curve, in accordance with ISDA model.
https://www.markit.com/markit.jsp?jsppage=pv.jsp
So I am confused as to why the tenor is not changed as CDXNAIG25 7y tenor doesnt mean 7 years to maturity from valuation date, It is 7yrs to maturity from its inception date.
Any guidance as to where my thinking is flawed is much appreciated.
Thanks