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Pricing a Single-Name CDS Option

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This example shows how to price a single-name CDS option usingcdsoptprice. The functioncdsoptpriceis based on the Black's model as described in O'Kane (2008). The optionalknockoutargument forcdsoptprice金宝app支持两种不同力学的cdoption. CDS options can be knockout or non-knockout options.

  • A knockout option cancels with no payments if there is a credit event before the option expiry date.

  • A non-knockout option does not cancel if there is a credit event before the option expiry date. In this case, the option holder of a non-knockout payer swaption can take delivery of the underlying long protection CDS on the option expiry date and exercise the protection, delivering a defaulted obligation in return for par. This portion of protection from option initiation to option expiry is known as the front-end protection (FEP). While this distinction does not affect the receiver swaption, the price of a non-knockout payer swaption is obtained by adding the value of the FEP to the knockout payer swaption price.

Define the CDS instrument.

Settle = datenum('12-Jun-2012'); OptionMaturity = datenum('20-Sep-2012'); CDSMaturity = datenum('20-Sep-2017'); OptionStrike = 200; SpreadVolatility = .4;

Define the zero rate.

Zero_Time = [.5 1 2 3 4 5]'; Zero_Rate = [.5 .75 1.5 1.7 1.9 2.2]'/100; Zero_Dates = daysadd(Settle,360*Zero_Time,1); ZeroData = [Zero_Dates Zero_Rate]
ZeroData =6×2105× 7.3521 0.0000 7.3540 0.0000 7.3576 0.0000 7.3613 0.0000 7.3649 0.0000 7.3686 0.0000

Define the market data.

Market_Time = [1 2 3 5 7 10]'; Market_Rate = [100 120 145 220 245 270]'; Market_Dates = daysadd(Settle,360*Market_Time,1); MarketData = [Market_Dates Market_Rate]; ProbData = cdsbootstrap(ZeroData, MarketData, Settle)
ProbData =6×2105× 7.3540 0.0000 7.3576 0.0000 7.3613 0.0000 7.3686 0.0000 7.3759 0.0000 7.3868 0.0000

Define the CDS option.

[Payer,Receiver] = cdsoptprice(ZeroData, ProbData, Settle, OptionMaturity,...CDSMaturity, OptionStrike, SpreadVolatility,'Knockout', true); fprintf(' Payer: %.0f Receiver: %.0f (Knockout)\n',Payer,Receiver);
Payer: 196 Receiver: 23 (Knockout)
[Payer,Receiver] = cdsoptprice(ZeroData, ProbData, Settle, OptionMaturity,...CDSMaturity, OptionStrike, SpreadVolatility,'Knockout', false); fprintf(' Payer: %.0f Receiver: %.0f (Non-Knockout)\n',Payer,Receiver);
Payer: 224 Receiver: 23 (Non-Knockout)

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Financial Instruments Toolbox Documentation

金宝app

A Practical Guide to Modeling Financial Risk with MATLAB

A Practical Guide to Modeling Financial Risk with MATLAB

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