Credit Default Swaptions and Standard CDS

quentin · December 8th, 2009, 5:05 pm

Hi everyone,is it common to trade swaptions on a standard (SNAC/STEC) CDS?Previously the swaption gave the right to enter the swap at the strike level, but now the rate may only be 100bp or 500bp while upfronts are exchanged.So what is the new payoff supposed to be ?thanks

StructCred · December 8th, 2009, 9:09 pm

A CDS option would still let you enter the CDS at a specified spread. On exercise you get to do a CDS trade on a standard contract plus cash upfront in accordance to your strike. Liquidity in these things is pretty close to zero though, the only swaptions that trade are on the indices (which always traded with standardized deal spreads anyway).