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IR exposure of CDS
As far as my understanding goes so far, the interest rate sensitivity of credit default swaps (baskets and single issues) is de facto zero.Question: Is this always the case or are there "special" situations (unordered markets, certain parameter combinations) in whicha CDS can develop relevant IR exposure?Thank you in advance for your answers!
IR exposure of CDS
A CDS is linked to the forward and hazard rate structure, so it could very well develop/have significant IR exposure. In fact, you need to make some assumptions to easily untangle IR and hazard rate exposure.
IR exposure of CDS
What are those assumptions exactly?On the Bloomberg CDSW screen, is it possible to key in parameters which will result in a significant IR DV01 of the CDS market value?
IR exposure of CDS
complete independence between IR and HR and/or known functional forms for IR & HR if you want to take it apart from CDS spreads alone.