Interest Rates
CDS vs Bond Spreads
What Additional Return Does a Corporate Bond Offer Compared with a Risk-Free Instrument? Bond Spread A buyer of a corporate bond assumes the company’s credit risk. If the […]
Archive
Reader level: Advanced
Risk
Valuation of CDS
The protection buyer periodically pays the CDS spread, while the protection seller assumes the obligation to compensate for losses if the organization defaults. However, this raises the main […]
Risk
Credit Default Swaps (CDS)
A CDS is an instrument/contract that provides protection against the default of a specific company or government. There are three parties or elements in the contract: Protection buyer […]
Derivatives
Reduced-form Models
Here is the English version, slightly polished while keeping your original logic and tone: Credit risk is not easy to diversify, because default risks across different organizations are […]
Risk
Credit Risk of Derivatives
Derivatives also have credit risk, and incorporating that risk into their price is relatively more difficult than in the case of stocks or bonds. When options or futures […]
Interest Rates
Market-Implied Credit Risk
A higher yield on corporate bonds indicates the presence of default risk. If we assume that the spread represents the product of default probability and loss given default: […]
Derivatives
Finite Difference Methods
The finite difference method, beyond finance, is actively used in physics and engineering fields, such as: The method involves breaking down a continuous differential equation into a system […]