Do you know what happens if a credit event occurs in the begin date of a credit default swap - How is the accrued computed?I suppose that in case of a default before the swap begin date the contract is knocked-out with no payments/receipts from either parties. But what if the credit event occurs on the begin date? Is the accrued 0? If that's the case then it's possible for the seller to receive nothing (zero accrued) and deliver the bond...Is this correct? The seller might end up without receiving at least 1 day of accrued? Is there any kind of settlement days (e.g. 3 days) ensuring a minimum days of accrued to the seller in a CDS contract?This is surely a very technical issue and must be specified in the ISDA documentation, but I don't have it...Thanks.

Interesting... Furthermore, what happens with a credit index in the same situation? The credit indices have an effective date in the past, before the trade date.

anyone?

For an on-the-run non-forward start the effective date of protection is usually set as calendar + 1. The accrued is paid for each day of protection, not for each instant of protection so assuming you default the next day when protection begins it appears you would owe a day of accrued to pay for the day of protection (of which you benefited)

Then, (just) theoretically speaking, for non-forward swaps. CDS spreads are bounded processes. The process is bounded at 0 (lower bound) and at 3 600 000 bps (upper bound and catastrophic scenario)!The CDS spread would only be unbounded (upper bound) if it were possible to receive an accrued amount of 0.Do you agree?Regards

Yes, I suppose one would have some sort of maximum spread as the daily default probability approaches 100% while the recovery rate approaches zero. And yes, I suppose it would be limited by the discrete (daily) accruals. If the accrual time was infinitely divisible one would think this upper bound would disappear.