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Credit Default Swaps - February 23, 2011

EDHEC affiliate professor Dominic O'Kane launches web-based credit default swap calculator

The CDS valuation model calculator found on www.cdsvalue.com is based on the standard CDS valuation set out in the book "Modelling Single-name and Multi-name Credit Derivatives" by Dominic O'Kane.

Its aim is to provide a rough and ready calculator for the valuation of a credit default swap which can be used for educational purposes and which can also be used for those wishing to price a deal quickly who do not have access to CDSW on Bloomberg and who may not mind if the calculated value differs from the official value by a small amount.

Here is a description of the inputs and outputs:

Valuation details

  • Valuation Date: The date on which the valuation is being performed. This is the trade date T for a new trade. The default value is today.

  • Settlement Date: The date on which the cash amount to enter the trade is paid. This is typically T+3 which is then holiday adjusted. The valuation is to this date.

Trade description

  • Effective Date: The date on which the protection begins. This is usually T+1 calendar i.e. unadjusted.

  • Accrual Start Date: The date on which the coupon starts or started accruing. This is used to determine the size of the next coupon. The market standard is for a full first coupon and so this date defaults to the previous CDS date .

  • Maturity Date: This is the final date of protection. The market standard is that it is a CDS date (unadjusted). It can be a weekend date.

  • Notional: The size of the trade in currency units. Although we prefix the amount with the $ symbol, the currency can be any currency. The user needs to simply ensure that the Libor curve and the CDS market curve are consistent with the choice of currency.

  • Protection: Specify whether the user is going long or short protection.

  • Coupon: The fixed contractual coupon on the premium leg in annualised basis point terms.

  • Recovery: The expected recovery rate of the reference credit. Market standard is to assume 40%.

  • Frequency: The frequency of payment of the coupon flows on the premium leg. The market standard is quarterly.

  • Basis: The convention used for calculating the premium payment amounts. Market standard is Actual/360.

CDS market data

The CDS Valuation model is calibrated to ensure that it exactly reprices the market quoted contracts. The details of those contracts as well as their spreads must be input.

  • Effective Date: The date on which the protection begins for the quoted CDS contracts. This is usually T+1 calendar i.e. unadjusted

  • Accrual Start Date: The date on which the coupon starts or started accruing. This is used to determine the size of the next coupon. For CDS quotes the accrual start date is the effective date (T+1) and the quotes are calculated on this assumption.

  • Settlement Date: The date on which the cash amount to enter the CDS trade is paid. This is typically T+3 holiday adjusted.

  • Maturity Dates: Each Y-year CDS has a maturity Dates are on the CDS Date following the date Y years in the future

  • Quoted Spread: The flat spread curve which reprices a CDS contract to its market price

  • Y-year Par Spread: The coupon of a Y-year CDS contract which has an initial cash value of zero

LIBOR market curve

  • Currency: The user can type in a set of rates or can load recent rates by clicking on the “load” button. These rates are not guaranteed to be recent.

  • Spot Date: The date on which interest rate swaps settle.

  • Deposit Rates: Only the 6M deposit rate can be entered. It is important to specify the corresponding basis convention.

  • Swap Rates: The user can enter the 1Y, 2Y, 3Y, 5Y, 7Y and 10Y swap rates. For a T-year maturity swap, these mature in Spot Date plus T-years. A frequency and basis convention must also be specified.


  • Cash Settlement Amount: The value to be paid (if positive) or received (if negative) by the user enters into this trade

  • Premium Accrued: The number of days of accrued coupon and the amount this equates to

  • Principal: The cash settlement amount minus the premium accrued

  • Clean Price: The price of a par Libor par floater plus short protection position minus the accrued coupon

  • Protection Leg Value: The expected present value of the protection leg.

  • Premium Leg Value: The expected present value of the coupon payments.

  • Risky Annuity PV01: The expected present value of each $1 of annualised coupon paid on the premium leg

  • Spread DV01: The change in the cash settlement amount if the par spread curve or quoted spread is shifted upwards in parallel by +1 basis point

  • Replication Spread: The coupon on the contract which would give it zero cash settlement amount. This assumes a short first coupon.

Cash Flows

The flows on the Cash Flows tab show the scheduled (but credit-vulnerable) payments on the premium leg. Note that:

  1. Accrual dates go from the CDS Dates to the date preceding the next CDS Date. However the last accrual includes the maturity date.

  2. Payments dates which fall on CDS Dates which are weekends or other holidays are adjusted to the following business day.


  • This model should produce a price which is very close to the official ISDA pricing model at www.cdsmodel.com.

  • Differences may arise due to different numerical implementations.

  • This model does not take into account holidays but it does take into account weekends.


  • "Modelling Single-Name and Multi-Name Credit Derivatives," Dominic O’Kane, Wiley Finance, September 2008