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Credit curve from bond quotation
Posted: July 30th, 2009, 10:51 am
by pascal2006
Hi, I want to build a credit curve for an entity who don't have CDS data, but there are some bonds quoted in Bloomberg.what is the procedure to build the credit curve in this case, please If someone have a paper on this stuff, plesase send it to me.I'm a newbie in credit, so sorry for this kind of question. Thanks
Credit curve from bond quotation
Posted: July 31st, 2009, 6:45 pm
by Yossarian22
get the z-spread which is quoted in BBG. this is a god proxy for the cds spread. If you really must get the cds spread look at a paper by Pugachevsky.
Credit curve from bond quotation
Posted: August 3rd, 2009, 6:37 am
by pascal2006
Ok, Thanks I will check the paper and implement it.
Credit curve from bond quotation
Posted: August 4th, 2009, 1:23 pm
by cigor
for bonds whithout options: asset swap spread - this should be the same as CDS in theory if you can get funding at Libor.for callable/puttable bonds : option adjusted spread as a best proxy.
Credit curve from bond quotation
Posted: August 18th, 2009, 1:44 pm
by beifert
Particularly right now, there is a large negative CDS-bond basis in the market, which means CDS spreads are typically lower than Z-spreads, asset swap spreads or option-adjusted spreads, in some cases by > 100bp. There are many factors which contribute to this, liquidity premia arguably being foremost. So pricing a CDS spread using bond spreads is likely to give you an overly cheap credit estimate. This is where quasi-science becomes quasi-art, but you might adjust for the average CDS-cash basis in the company's sector or subsector.