Credit Default Swap (CDS)

A credit default swap (CDS) is a contract that protects against losses resulting from credit defaults. The transaction involves two parties, the protection buyer and the protection seller, and also a reference entity, usually a bond. The protection buyer pays a stream of premiums to the protection seller, who in exchange offers to compensate the buyer for the loss in the bond’s value if a credit event occurs. The stream of premiums is called the premium leg, and the compensation when a credit event occurs is called the protection leg. Credit events usually include situations in which the bond issuer goes bankrupt, misses coupon payments, or enters a restructuring process. Financial Instruments Toolbox™ software supports the following objects and functions:

CDS Objects

Object	Purpose
CDS (Financial Instruments Toolbox)	CDS instrument object.
CDSOption (Financial Instruments Toolbox)	CDSOption instrument object.

CDS Functions

Function	Purpose
cdsbootstrap	Compute default probability parameters from CDS market quotes.
cdsspread	Compute breakeven spreads for the CDS contracts.
cdsprice	Compute the price for the CDS contracts.