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Defining, Estimating and Using Credit Term Structures. Part 3: Consistent CDS-Bond Basis

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  • Arthur M. Berd
  • Roy Mashal
  • Peili Wang

Abstract

In the third part of this series we introduce consistent relative value measures for CDS-Bond basis trades using the bond-implied CDS term structure derived from fitted survival rate curves. We explain why this measure is better than the traditionally used Z-spread or Libor OAS and offer simplified hedging and trading strategies which take advantage of the relative value across the entire range of maturities of cash and synthetic credit markets.

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  • Arthur M. Berd & Roy Mashal & Peili Wang, 2009. "Defining, Estimating and Using Credit Term Structures. Part 3: Consistent CDS-Bond Basis," Papers 0912.4618, arXiv.org.
    • Handle: RePEc:arx:papers:0912.4618
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    File URL: http://arxiv.org/pdf/0912.4618
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