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# ---
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# ---
# # Credit default swaps
#
# Copyright (©) 2014 Thema Consulting SA
#
# This file is part of QuantLib, a free-software/open-source library
# for financial quantitative analysts and developers - https://www.quantlib.org/
#
# QuantLib is free software: you can redistribute it and/or modify it under the
# terms of the QuantLib license. You should have received a copy of the
# license along with this program; if not, please email
# <quantlib-dev@lists.sf.net>. The license is also available online at
# <https://www.quantlib.org/license.shtml>.
#
# This program is distributed in the hope that it will be useful, but WITHOUT
# ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or FITNESS
# FOR A PARTICULAR PURPOSE. See the license for more details.
# ### Setup
import QuantLib as ql
calendar = ql.TARGET()
todaysDate = ql.Date(15, ql.May, 2007)
ql.Settings.instance().evaluationDate = todaysDate
risk_free_rate = ql.YieldTermStructureHandle(ql.FlatForward(todaysDate, 0.01, ql.Actual365Fixed()))
# ### CDS parameters
recovery_rate = 0.5
quoted_spreads = [0.0150, 0.0150, 0.0150, 0.0150]
tenors = [ql.Period(3, ql.Months), ql.Period(6, ql.Months), ql.Period(1, ql.Years), ql.Period(2, ql.Years)]
maturities = [calendar.adjust(todaysDate + x, ql.Following) for x in tenors]
instruments = [
ql.SpreadCdsHelper(
ql.makeQuoteHandle(s),
tenor,
0,
calendar,
ql.Quarterly,
ql.Following,
ql.DateGeneration.TwentiethIMM,
ql.Actual365Fixed(),
recovery_rate,
risk_free_rate,
)
for s, tenor in zip(quoted_spreads, tenors)
]
hazard_curve = ql.PiecewiseFlatHazardRate(todaysDate, instruments, ql.Actual365Fixed())
print("Calibrated hazard rate values: ")
for x in hazard_curve.nodes():
print("hazard rate on %s is %.7f" % x)
print("Some survival probability values: ")
print(
"1Y survival probability: %.4g, \n\t\texpected %.4g"
% (hazard_curve.survivalProbability(todaysDate + ql.Period("1Y")), 0.9704)
)
print(
"2Y survival probability: %.4g, \n\t\texpected %.4g"
% (hazard_curve.survivalProbability(todaysDate + ql.Period("2Y")), 0.9418)
)
# ### Reprice instruments
nominal = 1000000.0
probability = ql.DefaultProbabilityTermStructureHandle(hazard_curve)
# We'll create a cds for every maturity:
all_cds = []
for maturity, s in zip(maturities, quoted_spreads):
schedule = ql.Schedule(
todaysDate,
maturity,
ql.Period(ql.Quarterly),
calendar,
ql.Following,
ql.Unadjusted,
ql.DateGeneration.TwentiethIMM,
False,
)
cds = ql.CreditDefaultSwap(ql.Protection.Seller, nominal, s, schedule, ql.Following, ql.Actual365Fixed())
engine = ql.MidPointCdsEngine(probability, recovery_rate, risk_free_rate)
cds.setPricingEngine(engine)
all_cds.append(cds)
print("Repricing of quoted CDSs employed for calibration: ")
for cds, tenor in zip(all_cds, tenors):
print("%s fair spread: %.7g" % (tenor, cds.fairSpread()))
print(" NPV: %g" % cds.NPV())
print(" default leg: %.7g" % cds.defaultLegNPV())
print(" coupon leg: %.7g" % cds.couponLegNPV())
print("")
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