CDS spread curve data vendors usually give discrete curve points like 3Y, 5Y, 7Y etc.For a Credit Default Swap expiring in say 5 years and 1 month from today, is there a market convention on interpolation? Is it customary to use -- linear interpolation [ between 5Y and 7Y point for 5Y1M]- exponential interpolation [ between 5Y and 7Y point for 5Y1M]- bucketing e.g. CDS swaps maturing between 4yrs9 months and 5 years will just use 5 year spread point.Any help on this topic would be greatly appreciated.

linear interpolation (option 1) can get you into trouble.I assume that number two is "log linear" and would be okay, but it can get you into trouble with the recovery rates.number three is unappealing.Usually one interpolates on the hazard rate h(t) (defined by Q(t) = integral{0 to t} h(t')dt' is the survival prob to time t). Piecewise cponstant hazard rate is usually acceptable.

sorry to butt in - but can you tell me where I can get credit default data either default prob or hazrard rate ?

Regarding Hazard rate curve, which one of the following is better?1.) pairwise constant (step function) hazard rate curve (discontinuous).2.) linearly interpolated hazard rate curve. Thanks,

Sorry to get back to my original question again. My question referred to a different aspect of interpolation and date convention in CDS.Credit Default Swaps follow IMM convention - quarterly termination Mar 20th, Jun 20th, Sep 20th, Dec 20th of each year.So if I get into a 5 year CDS swap today (Nov 09, 2004) in all likelihood the maturity date of my CDS is going to be Dec 20, 2009 [the next IMM date after Nov 09, 2009] and not Nov 09, 2009.Taking this one step further, when I look at CDS vendors providing spreads for 2Y, 3Y, 5Y, 7Y etc. The spread curve provided by vendors will refer to 3Y - Dec 20, 20075Y - Dec 20, 20097Y - Dec 20, 2011and not3Y - Nov 09, 20075Y - Nov 09, 20097Y - Nov 09, 2011So when I bootstrap/interpolate [linear or log] cds curves, I will use the Dec 20 dates for each point and extract default probability curve accordingly.This is how I understand the Credit Default Swaps market conventions. Is my understanding correct?

yes

QuoteOriginally posted by: manmeetwhen I look at CDS vendors providing spreads for 2Y, 3Y, 5Y, 7Y etc. The spread curve provided by vendors will refer to 3Y - Dec 20, 20075Y - Dec 20, 20097Y - Dec 20, 2011and not3Y - Nov 09, 20075Y - Nov 09, 20097Y - Nov 09, 2011If you mean a vendor like http://www.markit.com/markit.jsp?jsppag ... y.jsp&id=5 - yes, everyone standardized on the 20th.