CreditDefaultSwap Class Reference

Credit default swap. More...

#include <ql/instruments/creditdefaultswap.hpp>

Inheritance diagram for CreditDefaultSwap:

Public Types
enum	PricingModel { Midpoint, ISDA }
Public Types inherited from Observer
typedef boost::unordered_set< ext::shared_ptr< Observable > >	set_type
typedef set_type::iterator	iterator

Public Member Functions
Constructors
	CreditDefaultSwap (Protection::Side side, Real notional, Rate spread, const Schedule &schedule, BusinessDayConvention paymentConvention, const DayCounter &dayCounter, bool settlesAccrual=true, bool paysAtDefaultTime=true, const Date &protectionStart=Date(), const ext::shared_ptr< Claim > &=ext::shared_ptr< Claim >(), const DayCounter &lastPeriodDayCounter=DayCounter(), bool rebatesAccrual=true)
	CDS quoted as running-spread only. More...
	CreditDefaultSwap (Protection::Side side, Real notional, Rate upfront, Rate spread, const Schedule &schedule, BusinessDayConvention paymentConvention, const DayCounter &dayCounter, bool settlesAccrual=true, bool paysAtDefaultTime=true, const Date &protectionStart=Date(), const Date &upfrontDate=Date(), const ext::shared_ptr< Claim > &=ext::shared_ptr< Claim >(), const DayCounter &lastPeriodDayCounter=DayCounter(), bool rebatesAccrual=true)
	CDS quoted as upfront and running spread. More...
Inspectors
Protection::Side	side () const
Real	notional () const
Rate	runningSpread () const
boost::optional< Rate >	upfront () const
bool	settlesAccrual () const
bool	paysAtDefaultTime () const
const Leg &	coupons () const
const Date &	protectionStartDate () const
	The first date for which defaults will trigger the contract.
const Date &	protectionEndDate () const
	The last date for which defaults will trigger the contract.
bool	rebatesAccrual () const
Results
Rate	fairUpfront () const
Rate	fairSpread () const
Real	couponLegBPS () const
Real	upfrontBPS () const
Real	couponLegNPV () const
Real	defaultLegNPV () const
Real	upfrontNPV () const
Real	accrualRebateNPV () const
Rate	impliedHazardRate (Real targetNPV, const Handle< YieldTermStructure > &discountCurve, const DayCounter &dayCounter, Real recoveryRate=0.4, Real accuracy=1.0e-8, PricingModel model=Midpoint) const
	Implied hazard rate calculation. More...
Rate	conventionalSpread (Real conventionalRecovery, const Handle< YieldTermStructure > &discountCurve, const DayCounter &dayCounter, PricingModel model=Midpoint) const
	Conventional/standard upfront-to-spread conversion. More...
Public Member Functions inherited from Instrument
Real	NPV () const
	returns the net present value of the instrument.
Real	errorEstimate () const
	returns the error estimate on the NPV when available.
const Date &	valuationDate () const
	returns the date the net present value refers to.
template<typename T >
T	result (const std::string &tag) const
	returns any additional result returned by the pricing engine.
const std::map< std::string, boost::any > &	additionalResults () const
	returns all additional result returned by the pricing engine.
void	setPricingEngine (const ext::shared_ptr< PricingEngine > &)
	set the pricing engine to be used. More...
Public Member Functions inherited from LazyObject
void	update ()
void	recalculate ()
void	freeze ()
void	unfreeze ()
void	alwaysForwardNotifications ()
Public Member Functions inherited from Observable
	Observable (const Observable &)
Observable &	operator= (const Observable &)
void	notifyObservers ()
Public Member Functions inherited from Observer
	Observer (const Observer &)
Observer &	operator= (const Observer &)
std::pair< iterator, bool >	registerWith (const ext::shared_ptr< Observable > &)
void	registerWithObservables (const ext::shared_ptr< Observer > &)
Size	unregisterWith (const ext::shared_ptr< Observable > &)
void	unregisterWithAll ()
virtual void	deepUpdate ()

Instrument interface
Protection::Side	side_
Real	notional_
boost::optional< Rate >	upfront_
Rate	runningSpread_
bool	settlesAccrual_
bool	paysAtDefaultTime_
ext::shared_ptr< Claim >	claim_
Leg	leg_
ext::shared_ptr< CashFlow >	upfrontPayment_
ext::shared_ptr< CashFlow >	accrualRebate_
Date	protectionStart_
Date	maturity_
Rate	fairUpfront_
Rate	fairSpread_
Real	couponLegBPS_
Real	couponLegNPV_
Real	upfrontBPS_
Real	upfrontNPV_
Real	defaultLegNPV_
Real	accrualRebateNPV_
bool	isExpired () const
	returns whether the instrument might have value greater than zero.
void	setupArguments (PricingEngine::arguments *) const
void	fetchResults (const PricingEngine::results *) const
void	setupExpired () const

Additional Inherited Members
Protected Member Functions inherited from Instrument
void	calculate () const
virtual void	performCalculations () const
Protected Member Functions inherited from LazyObject
Protected Attributes inherited from Instrument
Real	NPV_
Real	errorEstimate_
Date	valuationDate_
std::map< std::string, boost::any >	additionalResults_
ext::shared_ptr< PricingEngine >	engine_
Protected Attributes inherited from LazyObject
bool	calculated_
bool	frozen_
bool	alwaysForward_

Detailed Description

Credit default swap.

Note

This instrument currently assumes that the issuer did not default until today's date.

Warning:

if Settings::includeReferenceDateCashFlows() is set to true, payments occurring at the settlement date of the swap might be included in the NPV and therefore affect the fair-spread calculation. This might not be what you want.

Warning:

conventionalSpread (and impliedHazardRate) by default use the mid-point engine, which is not ISDA conform.

Examples

CDS.cpp.

Constructor & Destructor Documentation

CreditDefaultSwap() [1/2]

CreditDefaultSwap	(	Protection::Side	side,
		Real	notional,
		Rate	spread,
		const Schedule &	schedule,
		BusinessDayConvention	paymentConvention,
		const DayCounter &	dayCounter,
		bool	settlesAccrual = true,
		bool	paysAtDefaultTime = true,
		const Date &	protectionStart = Date(),
		const ext::shared_ptr< Claim > &	= ext::shared_ptr< Claim >(),
		const DayCounter &	lastPeriodDayCounter = DayCounter(),
		bool	rebatesAccrual = true
	)

CDS quoted as running-spread only.

Parameters

side	Whether the protection is bought or sold.
notional	Notional value
spread	Running spread in fractional units.
schedule	Coupon schedule.
paymentConvention	Business-day convention for payment-date adjustment.
dayCounter	Day-count convention for accrual.
settlesAccrual	Whether or not the accrued coupon is due in the event of a default.
paysAtDefaultTime	If set to true, any payments triggered by a default event are due at default time. If set to false, they are due at the end of the accrual period.
protectionStart	The first date where a default event will trigger the contract. Typically T+1 Notice there is no default lookback period and protection start here. In the way it determines the dirty amount it is more like the trade execution date.
lastPeriodDayCounter	Day-count convention for accrual in last period
rebatesAccrual	The protection seller pays the accrued scheduled current coupon at the start of the contract. The rebate date is not provided but computed to be two days after protection start.

CreditDefaultSwap() [2/2]

CreditDefaultSwap	(	Protection::Side	side,
		Real	notional,
		Rate	upfront,
		Rate	spread,
		const Schedule &	schedule,
		BusinessDayConvention	paymentConvention,
		const DayCounter &	dayCounter,
		bool	settlesAccrual = true,
		bool	paysAtDefaultTime = true,
		const Date &	protectionStart = Date(),
		const Date &	upfrontDate = Date(),
		const ext::shared_ptr< Claim > &	= ext::shared_ptr< Claim >(),
		const DayCounter &	lastPeriodDayCounter = DayCounter(),
		bool	rebatesAccrual = true
	)

CDS quoted as upfront and running spread.

Parameters

side	Whether the protection is bought or sold.
notional	Notional value
upfront	Upfront in fractional units.
spread	Running spread in fractional units.
schedule	Coupon schedule.
paymentConvention	Business-day convention for payment-date adjustment.
dayCounter	Day-count convention for accrual.
settlesAccrual	Whether or not the accrued coupon is due in the event of a default.
paysAtDefaultTime	If set to true, any payments triggered by a default event are due at default time. If set to false, they are due at the end of the accrual period.
protectionStart	The first date where a default event will trigger the contract. Typically T+1 Notice there is no default lookback period and protection start here. In the way it determines the dirty amount it is more like the trade execution date.
upfrontDate	Settlement date for the upfront and accrual rebate (if any) payments. Typically T+3, this is also the default value.
lastPeriodDayCounter	Day-count convention for accrual in last period
rebatesAccrual	The protection seller pays the accrued scheduled current coupon at the start of the contract. The rebate date is not provided but computed to be two days after protection start.

Member Function Documentation

setupArguments()

void setupArguments ( PricingEngine::arguments *  ) const

virtual

When a derived argument structure is defined for an instrument, this method should be overridden to fill it. This is mandatory in case a pricing engine is used.

Reimplemented from Instrument.

fetchResults()

void fetchResults ( const PricingEngine::results *  r ) const

virtual

When a derived result structure is defined for an instrument, this method should be overridden to read from it. This is mandatory in case a pricing engine is used.

Reimplemented from Instrument.

fairUpfront()

Rate fairUpfront

(

)

const

Returns the upfront spread that, given the running spread and the quoted recovery rate, will make the instrument have an NPV of 0.

fairSpread()

Rate fairSpread

(

)

const

Returns the running spread that, given the quoted recovery rate, will make the running-only CDS have an NPV of 0.

Note

This calculation does not take any upfront into account, even if one was given.

couponLegBPS()

Real couponLegBPS

(

)

const

Returns the variation of the fixed-leg value given a one-basis-point change in the running spread.

impliedHazardRate()

Rate impliedHazardRate	(	Real	targetNPV,
		const Handle< YieldTermStructure > &	discountCurve,
		const DayCounter &	dayCounter,
		Real	recoveryRate = 0.4,
		Real	accuracy = 1.0e-8,
		PricingModel	model = Midpoint
	)		const

Implied hazard rate calculation.

Note

This method performs the calculation with the instrument characteristics. It will coincide with the ISDA calculation if your object has the standard characteristics. Notably:

• The calendar should have no bank holidays, just weekends.
• The yield curve should be LIBOR piecewise constant in fwd rates, with a discount factor of 1 on the calculation date, which coincides with the trade date.
• Convention should be Following for yield curve and contract cashflows.
• The CDS should pay accrued and mature on standard IMM dates, settle on trade date +1 and upfront settle on trade date +3.

conventionalSpread()

Rate conventionalSpread	(	Real	conventionalRecovery,
		const Handle< YieldTermStructure > &	discountCurve,
		const DayCounter &	dayCounter,
		PricingModel	model = Midpoint
	)		const

Conventional/standard upfront-to-spread conversion.

Under a standard ISDA model and a set of standardised instrument characteristics, it is the running only quoted spread that will make a CDS contract have an NPV of 0 when quoted for that running only spread. Refer to: "ISDA Standard CDS converter specification." May 2009.

The conventional recovery rate to apply in the calculation is as specified by ISDA, not necessarily equal to the market-quoted one. It is typically 0.4 for SeniorSec and 0.2 for subordinate.

Note

The conversion employs a flat hazard rate. As a result, you will not recover the market quotes.

This method performs the calculation with the instrument characteristics. It will coincide with the ISDA calculation if your object has the standard characteristics. Notably:

• The calendar should have no bank holidays, just weekends.
• The yield curve should be LIBOR piecewise constant in fwd rates, with a discount factor of 1 on the calculation date, which coincides with the trade date.
• Convention should be Following for yield curve and contract cashflows.
• The CDS should pay accrued and mature on standard IMM dates, settle on trade date +1 and upfront settle on trade date +3.

setupExpired()

void setupExpired ( ) const

protectedvirtual

This method must leave the instrument in a consistent state when the expiration condition is met.

Reimplemented from Instrument.