The Par Equivalent CDS (Credit Default Swap) Spread Analyzer is an indispensable tool for evaluating a bond-CDS trade opportunity.
A corporate bond is one of the most commonly traded fixed income securities. Generally, an investor can buy bond and CDS protection, or sell both, to gain risk-free profit. Basis analysis involves evaluating the gap between a corporate Bond and its related CDS, which must be properly managed to effect risk-free profit.
The Analyzer has 2 types of outputs. First, the Analyzer provides a quantitative calculation of the basis between a corporate bond and a CDS on the same name. The calculation is instantaneous once the inputs are entered. The quantitative output is the bond spread, which is Par Equivalent CDS Spread (PECS).
Second, the Analyzer produces seven different graphical illustrations of the basis. The interactive graphs chart the pricing behaviors of:
- Basis vs Bond Price (clean)
- Basis vs Recovery assumption
- Basis vs Coupon Pay Frequency
- Basis vs Coupon Rate
- Basis vs parallel shift of discounting curve
- Basis vs parallel shift of spread curve
- Basis vs time to maturity
The notes to the graphs provide supplemental explanation of pricing behaviors.
The Analyzer is optimally designed and priced for the trading and investment professionals as well as related professionals, including quantitative analysts and risk managers. In addition, the Analyzer is intended as an interactive training tool for junior professionals. By manipulating the inputs on the Analyzer, the user can develop a sense for pricing behavior in response to changes to the inputs.
The Analyzer is an “intelligent” calculator in that it does not permit the probability of default to be negative. Accordingly, an error message will be displayed if the Par Spread Curve is significantly decreasing.
IMPORTANT DISCLAIMER. The Analyzer does not provide market data, which need to be entered by the user. The Analyzer is intended to supplement professional trading and investment discretion and does not purport to provide investment or trading advice. Any investment decision is the sole responsibility of the user. The Analyzer and its seller are not responsible for any losses incurred due to any actions or inactions taken in reliance on the Analyzer. Please contact [email protected] if you require more flexible analytical tools.