Equations

Question 1

Spread equation for default

Answer 1

Spread = Probability of default x (1-RR)

Question 2

Upfront payment

Answer 2

Risky annuity x (quoted spread - Coupon) x notional

Question 3

MTM

Answer 3

new upfront - old upfront

Question 4

CDS profit

Answer 4

MTM + carry

Question 5

Carry

Answer 5

entry spread * time in years * notional

Question 6

Risky PV

Answer 6

(Discounted payout on default * prob. default) + (discounted payout on no default * prob no default)

Question 7

CDS-Bond basis

Answer 7

CDS spread - Bond spread

Question 8

Duration

Answer 8

duration 1 * ntional 1 = duration 2 * notional 2

Question 9

Credit event pnl impact

Answer 9

(no. defaults/ no. constituents) x (1-RR) x notional

Question 10

Basis - theoretical

Answer 10

traded index spread - weighted spread of underlying single name CDS basket

Question 11

impairment of tranche

Answer 11

portfolio loss / tranche width

Question 12

initial option cost

Answer 12

notional x option cost (c) / 10,000

Question 13

Receiver breakeven spread

Answer 13

strike - (options cost / forward duration)

Question 14

Payer breakeven spread

Answer 14

strike + (option cost/ forward duration)

Question 15

PNL on option if exercised

Answer 15

[(spread - strike) * forward duration * notional] - option cost

Question 16

PNL on option if not exercised

Answer 16

• option cost

Question 17

Daily BP vol

Answer 17

(%im vol/ (ndays)^0.5)) * forward spread