Converting CDS Upfronts into a running spread

Hebridean · June 1st, 2005, 12:00 pm

For CDS, can anyone advise on a suitable method for converting "an Upfront Payment + Running spread" into a single equivalent "Running spread"?I'm assuming simply equating the straight NPV of the cashflows is not good enough as in the first case the Upfront is received with probability = 1, whereas if it's wrapped up in the spread it is subject to the default probability.

Pat · June 1st, 2005, 5:51 pm

It's a bad idea ... small changes in the underlying credits lead to much larger changes in the running spread ....

Hebridean · June 1st, 2005, 6:49 pm

Ok, but I still want a convenient method to compare spreads that are quoted with an upfront (e.g. 20% upfront + 500 bp running) to those that are quoted without one (e.g. 1000bp) for protection on the same risk.

yes · June 2nd, 2005, 9:36 am

H do you know how to compute the PV of a CDS?

CDO2 · August 12th, 2005, 11:21 am

did you guys managem to convert the upfront to runnign spreads?Regards,

CDO2 · August 12th, 2005, 11:21 am

did you guys managem to convert the upfront to runnign spreads?Regards,

CDO2 · August 12th, 2005, 11:22 am

did you guys managed to convert the upfront to running spreads?Regards,