hello.to mark to market a CDS:we take out the offsetting position, use the swap curve, recovery rate and implied probability of default to get the PV of future net cashflows, and add them up, yes? (i.e. what the CDSW function on bloomberg does).however, am i right in saying that, if, say, I've held the CDS position for a day, I've accumulated some carry (the spread/360?), and that this is'n't taken into account by the above, and so that it should be added on to get my PnL?

Quotewe take out the offsetting position, use the swap curve, recovery rate and implied probability of default to get the PV of future net cashflows, and add them up, yes? (i.e. what the CDSW function on bloomberg does). what do you mean by take the offsetting position ? Are you talking about the fixed (premium) leg versus the recovery leg of the CDS ?Quote however, am i right in saying that, if, say, I've held the CDS position for a day, I've accumulated some carry (the spread/360?), and that this is'n't taken into account by the above, and so that it should be added on to get my PnL? you can always calculate the accrued interest separately but accrued is not the same as p+l. you might have some accrued but at the same time you can have MTM losses. if today you sell a 5yr CDS at 100 and the next day its quoted at 200 then you have a MTM loss of approximately 5% even though you have accrued 1 days worth of premium.

If am not mistaken, CDS contracts are standardised contracts where the maturity date follows the IMM dates, and contracts roll every quarter ala Eurodollar futures... so the "accrued" will be almost nil...

do you mean accrued will be small or nonexistent ? what if the spread were 500 and you are 75 days into the current accrual period ?

I assume it is meant that accrued spread is very low to be accounted .However for CDS MTM wont it be simply :- Spread (T+1) X Risky DV01 (T+1) - Spread( T) X Risky DV01 (T).

QuoteOriginally posted by: slslslhello.to mark to market a CDS:we take out the offsetting position, use the swap curve, recovery rate and implied probability of default to get the PV of future net cashflows, and add them up, yes? (i.e. what the CDSW function on bloomberg does).however, am i right in saying that, if, say, I've held the CDS position for a day, I've accumulated some carry (the spread/360?), and that this is'n't taken into account by the above, and so that it should be added on to get my PnL?No, the carry is automatically included. You are one day closer to receiving each of the fixed payments, so their PV will be increased. If you actually received a fixed payment over the day, the mark of the CDS would drop, but you would have cash to compensate.If this were a bond instead of a CDS, you would compute the accrued amount for accounting and tax purposes only. That is, you value the cash flows of the bond without worrying about what is principal versus interest, this gives you a "dirty" price, from which you subtract the accrued interest to get a clean price. But the dirty price is the one that matters for finance, and that is the price we compute for a CDS.