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A note on replicating a CDS through a repo and an asset swap

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Listed:
  • Lorenzo Giada
  • Claudio Nordio

Abstract

In this note we show how to replicate a stylized CDS with a repurchase agreement and an asset swap. The latter must be designed in such a way that, on default of the issuer, it is terminated with a zero close-out amount. This break clause can be priced using the well known unilateral credit/debit valuation adjustment formulas.

Suggested Citation

  • Lorenzo Giada & Claudio Nordio, 2013. "A note on replicating a CDS through a repo and an asset swap," Papers 1305.0040, arXiv.org.
    • Handle: RePEc:arx:papers:1305.0040
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    File URL: http://arxiv.org/pdf/1305.0040
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