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close-to-maturity CDS and Fincad XL
Hi,I use Fincad XL v.9 for pricing CDS and noticed that when pricing CDS close to termination date (20Sep-08) Fincad uses 6 months spread as par spread. I understand that it should interpolate between 6 months spread and zero (as probability of defaulting today is close to zero), so the par spread for cds terminating 3 months from now should be roughly a half of 6 months spread. Any idea why it is not so?thx in advance.
close-to-maturity CDS and Fincad XL
I'm not sure that you'd want to model the spread from zero, linearly or however, to your 6 month point.. In NYC, Markit Partners publishes from 1y.. Some people take on the convention of copying the 1y to 6m, and further the 6m to the 3m point.. This way, your view is steady throughout the model.. But this should be more of an in-house view on your counterparty, and their business performance/undertakings..
close-to-maturity CDS and Fincad XL
My name is Gurpreet Banwait and I work for FINCAD. The example that we publish starts with the 6m spread. However, this is just an example. The user has full control over which points to use, add or remove from the par spread input.