Par spread is "the spread that would cause the present value of a CDS trade to be zero for both the buyer and seller at the outset of the trade". Historically, par spread was the popular way to quote CDS. After the Big Bang initiated by ISDA, CDS on investment grade Reference Entities will stipulate a fixed coupon of 100 basis points and be quoted with a flat curve spread (quoted spread). High-yield Reference Entities will trade on a fixed 500 basis points spread and be quoted in up-front points. Quoted spread/upfront is trader's opinion on hazard structure. Thus, it is plain to see that: the difference in payment schema causes the difference in par spread and quoted spread. The former pays coupon equals to zero entry fee at trade date and par spread at coupon dates, while the latter pays a upfront fee at cash settlement date and standardized coupons at IMM dates. Par spread stands for future cash amount, while quoted spread tells the current entry cost. A more elegant explaination can be found at http://www.markit.com/cds/announcements ... g_bang.pdf
. Based on market par spread quotes for CDS of different maturities, we can calibrate a default probability curve and to derive pv of the default leg and the premium leg of the CDS. They are unique for given maturity and reference entity. While quoted spread is a flat curve itself.Yet, they should not be too far away, as conceptually, they both stand for the credit quality of reference entity.