Bond equivalent market value of a CDS

Polysena · January 13th, 2009, 8:42 pm

Anybody heard of this and could explain what it is... only reference I found is in a book Credit derivative strategies : new thinking on managing risk and return R. Douglas ( but I do not have the book) and preview of page 163 isn't quite sufficient. Why is there only two reference to this measure of risk in the whole internet?Does it come under another names? Thanks in advance.

Wibble · January 14th, 2009, 8:28 am

There was a jpm conference in 2004 where eric beinstein detailed comparisons of bond spread measures with cds spread for structuring trades which you might find useful

Polysena · January 14th, 2009, 8:31 am

Thank you I will try to find it.. and see whether it gives an answer to my questions

PlasticSaber · January 17th, 2009, 6:12 pm

Are you trying to compare the relative value between a bond and a corresponding CDS? If so, the basic measure would be asset swap spread - interpolated CDS spread. The basis reaches historical high for a long of basis packages. It is hard to say which is the fair value.

freddiemac · January 17th, 2009, 7:14 pm

Or perhaps this is what you are looking for?http://papers.ssrn.com/sol3/papers.cfm? ... =736884HTH

Polysena · January 18th, 2009, 9:13 pm

Plastic: no I am not trying to compare the relative value, Freddiemac i have that paper and no..the bond equivalent value seems to be a way to report exposures from a risk management perspective. I'd like to know more about it. Either this is used or the Replacement value (RV MTM)...so my question is what does the bond equivalent value measure what is it.. I have no access to the book I mentionned so I cannot find out. I find it weird that this seems to be a very standard measure and I cannot find anything about it.

list · January 18th, 2009, 9:51 pm

I didn't meet the definition but from the words it was used for it might be something like inverse transformation of the changes in time of the CDS spread into risky bond rate. In other words this is the inverse problem oto the CDS pricing. Recall that the CDS spread is the time pointwise value of insurance on risk of default that is in turn is the adjacent value to the bond price.

Polysena · January 19th, 2009, 6:29 am

Perhaps List.. I am asking baceause I really do not know.. I mean I haven't seen any definition of this bond equivalent value and even less I do not know what does it really measure and why is it an interesting measure.That is precisely what i am asking.. would you know?

list · January 19th, 2009, 8:44 am

It difficult to say somthing useful here but of course it is difficult to read anything that could related though it might be curious.On the other hand if the words in the definition taking together do not to synthetically represent their common sense along that it a big chance that the baskets valuation was developed incorrectly and therefore you conditionally can accept that the Ho hypothesis has a low probability. This in turn could convenes you do stop your search.

jomni · January 19th, 2009, 8:57 am

Maybe the reason why this measure is not discussed is because it's unpopular and useless.

Polysena · January 19th, 2009, 9:12 am

No this is a reporting measure that is used by all IBs..I suspect however that it comes also under another name.. but then go figure.

Polysena · January 19th, 2009, 4:29 pm

I found this that references this notionBond Equivalent value

loooooo · April 18th, 2011, 9:18 pm

Maybe too late to answer it, but I guess it can be achieved by discounting all cash flows (coupons and principal repayment) using RV01.

viking66 · April 19th, 2011, 6:07 pm

I've seen the term but I have not seen it defined. I suspect it is the upfront premium/ or discount expressed as a bond price. For example if the upfront is 5%, then the bond equivalent value = 105, & if the upfront is -5% then the bond equivalent value = 95.

Polysena · April 20th, 2011, 4:27 pm

Never too late still have not found out really how this is defined..

mysterious uh