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CDS P&L formula?
Hi,I came across a formula used for P/L on CDS portfolios:N is the notional, d1, s1 is duration & spread yesterday, d2, d2 is duration & spread today.I would expect the P&L to be N * (s2-s1) * d1but the formula used is the above multiplied by (d1/d2). This is close to 1 so it doesn't make much difference. Even so, anyone have any clue why this should be done?B
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CDS P&L formula?
not sure why this is in this forum but...MtM on CDS = (s_t - s_0)*RPV01_twhere subcript t quantities are today and subscript zero is at trade initiation. RPV01_t is the present value of a risky annuity from today to maturity of the CDS (like a duration). This is correct because if you bought protection at s_0, you could sell it today for s_t running and lock in a risky annuity (default legs cancel).That's for capital gains. Carry is s_0*(t-t_0) (ACT/360).