CDS Pricing

[doobsmeister]

Upfront premium = (Credit Spread - Fixed Coupon) x Duration ——> GOT IT
Credit spread = (Upfront premium/Duration) + Fixed Coupon ———> GOT IT
Pirce of CDS in currency per 100 par = 100 - Upfront premium % ———-> WHY? Shouldn’t the price of the CDS be the upfront payment plus the coupons? It seems that the 100-premium would make sense if they said it was the price of a bond..

 

[Juz4fun]

From my view, I treat the price of CDS as the PV of future premium payment that the protection seller will recieve. So, if the portion of premium is paid upfront by the protection buyer, the price of CDS will drop since buyer will pay lesser premium payment (less PV or price of CDS).

 

[ro424]

I think this is just to convert dollar amounts into percentage of par so relative prices are obtained. Can be thought of as a bond equivalent price for comparison purposes as well.