Workflow to Price a Credit Derivative Instrument

Price and analyze a credit default swap. For more information on the supported credit derivative instruments, see Choose Instruments, Models, and Pricers.

Price CDS Instrument Using Default Probability Curve and Credit Pricer

Open Live Script

This example shows the workflow to price a CDS instrument when you use a defprobcurve model and a Credit pricing method.

Create CDS Instrument Object

Use fininstrument to create a CDS instrument object. 

CDS = fininstrument("CDS",'Maturity',datetime(2021,9,15),'ContractSpread',15,'Notional',20000,'Period',4,'Basis',3,'BusinessDayConvention',"follow",'Name',"CDS_instrument")
CDS = 
  CDS with properties:

           ContractSpread: 15
                 Maturity: 15-Sep-2021
                   Period: 4
                    Basis: 3
             RecoveryRate: 0.4000
    BusinessDayConvention: "follow"
                 Holidays: NaT
        PayAccruedPremium: 1
                 Notional: 20000
                     Name: "CDS_instrument"

Create defprobcurve Object

Create a defprobcurve object using defprobcurve. 

Settle = datetime(2020,9,20);
DefProbTimes = [calmonths(6) calyears([1 2 3 4 5 7 10 20 30])];
DefaultProbabilities = [0.005 0.007 0.01 0.015 0.026 0.04 0.077 0.093 0.15 0.20]';
ProbDates = Settle + DefProbTimes;
DefaultProbCurve = defprobcurve(Settle,ProbDates,DefaultProbabilities,'Basis',5)
DefaultProbCurve = 
  defprobcurve with properties:

                  Settle: 20-Sep-2020
                   Basis: 5
                   Dates: [10×1 datetime]
    DefaultProbabilities: [10×1 double]

Create ratecurve Object

Create a ratecurve object using ratecurve. 

Settle = datetime(2020,9,15);
Type = 'zero';
ZeroTimes = [calmonths(6) calyears([1 2 3 4 5 7 10 20 30])]';
ZeroRates = [0.0052 0.0055 0.0061 0.0073 0.0094 0.0119 0.0168 0.0222 0.0293 0.0307]';
ZeroDates = Settle + ZeroTimes;
myRC = ratecurve('zero',Settle,ZeroDates,ZeroRates)
myRC = 
  ratecurve with properties:

                 Type: "zero"
          Compounding: -1
                Basis: 0
                Dates: [10×1 datetime]
                Rates: [10×1 double]
               Settle: 15-Sep-2020
         InterpMethod: "linear"
    ShortExtrapMethod: "next"
     LongExtrapMethod: "previous"

Create Credit Pricer Object

Use finpricer to create a Credit pricer object and use the ratecurve object for the 'DiscountCurve' name-value pair argument.

outPricer = finpricer("credit",'DefaultProbabilityCurve',DefaultProbCurve,'DiscountCurve',myRC)
outPricer = 
  Credit with properties:

              DiscountCurve: [1×1 ratecurve]
                   TimeStep: 10
    DefaultProbabilityCurve: [1×1 defprobcurve]

Price CDS Instrument

Use price to compute the price for the CDS instrument. 

Price = price(outPricer,CDS)
Price = 
52.7426

See Also

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