A credit default swap (CDS) option, or credit default swaption, is a contract that provides the holder with the right, but not the obligation, to enter into a credit default swap in the future. CDS options can either be payer swaptions or receiver swaptions. If a payer swaption, the option holder has the right to enter into a CDS where they pay premiums; and, if a receiver swaption, the option holder receives premiums. Financial Instruments Toolbox™ software providescdsoptprice
for pricing payer and receiver credit default swaptions. Also, with some additional steps,cdsoptprice
can be used for pricing multi-name CDS index options.
O'Kane, D.,Modelling Single-name and Multi-name Credit Derivatives, Wiley, 2008.
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