CDS Delivery Option – Better Pricing of Credit Default Swaps

Credit-default swaps (CDSs) are rapidly replacing bonds as the investment of choice for institutional investors. This work explains this investment option and why the CDS market has exploded from nothing to $28.8 trillion over the past seven years.

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For traders trying to navigate the increasingly volatile credit default swap market, CDS Delivery Option provides worked-out examples, over 30 charts, a case study of Delphi, and detailed explanations of how the subprime crisis caused the credit crisis and the near collapse of the GSEs. The book includes detailed information on:

how to value a CDS contract
how to value the delivery option
how contract value changes when the yield curve flattens or becomes steeper
how contract value changes with bullish or bearish market moves
how to figure out when to buy protection and when to sell protection
how to hedge CDS risk
when and how to unwind a contract prior to settlement
when to hold a trade through delivery
how to navigate a "squeeze" (when the notional value of contracts going through delivery is larger than the supply of the cheapest-to-deliver issue)
when buying contracts can make their prices go down
how to construct a basis trade
how to find arbitrage opportunities
how to analyze default probability and corporate debt
when to settle via auction and when to settle via physical delivery
which note is the cheapest to deliver

This book is an indispensable resource for all market professionals working in the CDS market.