Need to understand the pricing model and the risk management for the Contingent Credit Default Swaps (C-CDS). It is a variable/floating/dynamic notional CDS on an IRS where the notional is equal to the MTM of the IRS with the referenced underlying counterparty/obligor should that obligor default.Would like to receive research papers or links referencing this product, if possible please. Thank you.

They don't have to reference IR derivatives - people trade these on commodity derivatives as well, and even euqity derivatives. Also, if you have multiple diverse contracts with the same counterparty, and that counterparty defaults, you need to net the marks (non-trivial) of all these contracts, and if the net is in the money, then that's the notional of your credit protection; but if the net is out of the money, then you still do (unilateral). Given these complexities, practically, you'll need to use Monte Carlo.But for a single IRS, you can consider a series of swaptions referencing the IRS, expiring every month. Add up their pv, and you will get a theoretical mark for your C-CDS. Actually, they trade at a premium to this mark.On Bloomberg, take a look at ICVA<go> (ICAP), it has some quotes (needs permissioning...) (no, I'm not affiliated...)

P.S. Here's a related paper:http://papers.ssrn.com/sol3/papers.cfm? ... _id=717344

Thank you. Rgds.

Bi-Lateral C-CDS is not uncommon, especially in EMG. They are much easier to price. Just adjust the risk free DFS for each cash flow by the SurvProbs.

Bi-Lateral C-CDS is not uncommon, especially in EMG. They are much easier to price. Just adjust the risk free DFS for each cash flow by the SurvProbs.

You're absolutely right that you'd price a bilateral extinguisher this way (say 10mil notional, pay fixed, receive flating, terminate early on some credit event), but C-CDS is trickier because the notional is tied to MTM of another contract - or net MTM of a portfolio.

My understanding of this is the following, please tell me if you disagree:Using monte-carlo, simulate the underlying processes driving the value of the underlying exposure (IRS, cross-currency swap etc). Together with this, simulate the default process which may have some default correlation to these processes eg. default probs increase as rates increase. If default is triggered in the simulation, register the payment of the C-CDS against the mark to market of the underlying ( if it is positive and zero otherwise ) Alternatively for better accuracy, use a backward numerical model, and assuming no correlation to default process, use a survival curve to multiply against the expected future values on the backward model ( e.g. tree )It seems to me that the big issues arises when you try to hedge this one - simple perturbation model on underlying inputs translates into positions in the underlying "vanillas" eg. CDS's ... which means that you have to delta hedge the CDS against the underlying exposureDoes this sound feasible ?

QuoteOriginally posted by: AlphaNumericusP.S. Here's a related paper:http://papers.ssrn.com/sol3/papers.cfm? ... 717344This paper is great. Do you know of any ones for commodity derivatives?