http://www.seomoz.org/tools/page-strength.php?

A popular site such as The Big Pictue scores 7/10

http://bigpicture.typepad.com/

I score 2/10 - must try harder!

Link to Wilmott

http://www.wilmott.com/attachments/CPDOs%20a%20primer.zip

http://www.amazon.co.uk/Frequently-Asked-Questions-Quantitative-Finance/dp/0470058269/sr=1-4/qid=1164651158/ref=sr_1_4/202-8567845-9211045?ie=UTF8&s=books

Following on from calculating DV01 using CDSW in a previous post,

http://www.noelwatson.com/blog/PermaLink,guid,fa4d8579-f754-48e0-a485-dc7c6850405f.aspx

I have been looking at using CDSW for indices. Page 14 of the following shows how an index trade is priced

http://www.indexco.com/download/Products/CDS/iTraxx.EUR.Presentation.pdf?download=20061127

To recreate the trade shown, the first thing to do is to find the ticker and series (this differs slightly from a single name search).

Type CDSI then option 11

this gives you the following selection

we are interested in the latest series (6) of ITRAXX Europe for 5 year. The series is therefore "6EU2".

After modifying the data to match the document, we get the following

Note that these values are very slightly different than the document - the interest rates are different now to when the document was written.

Some things to note:

• Quarterly payment frequencies
• Principal is approx 2* DV01 (28 bps deal vs. initial 30 bps coupon)
• Accrued of -83.3 is notional*spread*elapsed days (we are using ACT/360)

=10000000*(30/10000)*1/360

• Recovery rate is 40% - ITRAXX Europe Subordinated is 20%
• Moving the valuation date further into the future (see below) shows principal reducing (because DV01 is reducing) and accrued increasing. The accrued will increase until the 20th December when it will get reset to zero after the quarterly coupon is paid.

http://www.microsoft.com/forefront/clientsecurity/default.mspx

Info here

http://download.microsoft.com/download/A/A/1/AA14D117-651C-4D89-8A16-6B8A0019E7FF/MFCS_Datasheet.pdf

http://www.thebusinessonline.com/Document.aspx?id=E161BD4B-1844-497D-9A04-207B84C577A0

As the article says, lax lending criteria/excess liquidity have keeped the bubble going

http://www.microsoft.com/technet/prodtechnol/sql/bestpractice/oltp-performance-issues.mspx

I recently finished a good book that has a reasonable amount of performance related info

http://www.amazon.co.uk/MCTS-Training-Kit-Implementing-Maintaining/dp/073562271X/sr=8-1/qid=1164033242/ref=pd_ka_1/203-3314324-8299129?ie=UTF8&s=books

Not as big as other rollercoasters

http://www.noelwatson.com/blog/PermaLink,guid,f7101749-9b8b-4a18-bd43-a2c5434d7190.aspx

but 10/10 for effort

http://www.realtechnews.com/posts/3760

http://www.metro.co.uk/news/article.html?in_article_id=25218&in_page_id=34

http://biz.yahoo.com/prnews/061114/ukm029.html?.v=4

This will help improve the problem with booking and keeping a track of credit derivative trades

http://www.noelwatson.com/blog/PermaLink,guid,5d4aafbd-ee2a-4bcc-9075-72494cbe136a.aspx

https://connect.microsoft.com/content/content.aspx?ContentID=3705&siteid=210&wa=wsignin1.0

Dura (DRRA-OpCo) filed for Chapter 11 last week. I didn't think anything of this until our import job failed to complete today. The reason was that we had only catered for spreads of <100000 bps, but Dura was coming it at over 200000 bps. When a company is trading in this position I guess the protection sellers make up a number big enough so that no one takes them up on the offer (200000 bps = 2000%), and that this was an upfront spread converted into a running spread.

Senior and sub indices for Loan CDS

http://www.markit.com/markit.jsp?jsppage=announcements.jsp&id=3

http://www.microsoft.com/sql/ctp.mspx

http://download.microsoft.com/download/2/B/5/2B5E5D37-9B17-423D-BC8F-B11ECD4195B4/WhatsNewSQL2005SP2.htm

Seems not long ago that SP1 was released!

This was driven from a requirement to ensure that traders couldn't enter spreads that had a negative implied default rate. For example if a 3 year CDS is priced at 50 bps and a 5  year at 60 bps, the 4 year must be between 37.5 and 75 to avoid an arbitrage -

3 * 50 = 150bps

5 * 60 = 300bps

(this example is given in Chaplin)

Obviously this was simplified example (not taking interest rates into account), so more digging was required - I found the following on Wilmott

http://www.wilmott.com/messageview.cfm?catid=4&threadid=37690

http://www.wilmott.com/messageview.cfm?catid=8&threadid=9830

and in particular, the JP paper that details how the calculation is done

http://www.wilmott.com/attachments/CDS_JPM1.zip

I got the majority of the calculations working but couldn't get from the yld to discount factor. However, looking at Moorad Chouldry's new book, it appears that he is happy to use the spot rate for his calculations, so I have done likewise, although this will mean that my results differ slightly from Bloomberg.

Taking a typical curve (ACCOR), Bloomberg CDSW (using JPMorgan model), gives the following

The things to note here are:

• Using EUR swap curve
• Quarterly calculation/payments
• Fees accrued on ACT/360 basis
• Recovery of 40%

TODO: Bootstrap swap curve

So for the 5 year default, we are showing 0.028 compared to 0.0276

We can also use the spreadsheet to calculate DV01

although we differ from Bloomberg's figure of 4678.

UPDATE: The 4678 figure is wrong - I hadn't adjusted the deal spread from default of 100 bps.

Note that my original calculation

http://www.noelwatson.com/blog/PermaLink,guid,5c54efd9-9b42-480a-bb1a-01386a2c9d48.aspx

gives a DV01 of 4484, so this is more accurate - close but no cigar.

However, the spreadsheet enables us to check for negative default rate. For example, if we multiply the two year spread by 10, we can see that the probability of default is higher at two years than at three. This would lead to an arbitrage situation (I would sell you two year protection and buy three year protection), so should be flagged.

Attachment: Spreadsheet (note that the 2 year spread has the x10 value)

CDSWv1.xls (40.5 KB)

• Credit Derivatives by Geoff Chaplin (Page 97) http://www.amazon.co.uk/exec/obidos/ASIN/047002416X/qid=1141718528/sr=1-1/ref=sr_1_2_1/026-0058056-7028455

• Moorad Choudry: The Credit Default Swap Basis (Page 160)

http://www.amazon.co.uk/Credit-Default-Swap-Basis/dp/1576602362/sr=1-1/qid=1162898932/ref=sr_1_1/026-8787779-9446068?ie=UTF8&s=books

Ability to scale to more than 100000 messages/sec

http://www.microsoft.com/windowsserver/facts/casestudies/lse.mspx

Good to see Microsoft pushing more into the financial sector - contradicts John Davies statement

http://www.noelwatson.com/blog/PermaLink,guid,32742325-fec7-44be-98d2-2f64b7578d79.aspx

http://www.realtor.org/home_buyers_and_sellers/buy_now_ad.html

http://www.realtor.org/files/home_buyers___sellers/good_time_to_buy_ad.pdf

I will revisit this in one year's time from now. I'm guessing the market will still be heading down

http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif

It appears that Blue Mountain assumed that Cablecom Luxembourg S.C.A. (CABCOL) would cancel their debt but instead issued more debt.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aAGLLFzoxbXY&refer=home

http://www.ft.com/cms/s/93c88c4e-6ae0-11db-83d9-0000779e2340.html

http://www.ft.com/cms/s/f9a56cea-6adf-11db-83d9-0000779e2340.html

Blue Mountain were one of the first people to use QuoteVision - the company I used to work for

http://www.creditma.com/clients.aspx

One of the F.T. articles states

"However, for a CDS contract to be valid, it needs to be backed up by some tangible bonds in the marketplace (even if far smaller in size). Usually, that is not a problem, since few companies are debt free. But if corporate events occur which prompt a company to withdraw its bonds - such as a merger - this can suddenly make CDS contracts worthless"

Interesting, as companies such as Nokia do not have bonds outstanding, yet have CDS traded on them. I remember this happening with Sainsburys last year. I believe there is a CDS market as traders are trading on the assumption that there will be bonds issued at some point in the future, so are creating a market in anticipation

Janet Tavaloki is quoted in the other FT article - her two books

http://www.amazon.co.uk/Collateralized-Debt-Obligations-Structured-Finance/dp/0471462209/sr=8-1/qid=1162552071/ref=sr_1_1/026-8787779-9446068?ie=UTF8&s=books

http://www.amazon.co.uk/Credit-Derivatives-Synthetic-Structures-Applications/dp/047141266X/sr=8-2/qid=1162552071/ref=sr_1_2/026-8787779-9446068?ie=UTF8&s=books

 give other examples of where there has been contractual disputes in the past - one example being the Nomura and CSFB case

http://www.credit-deriv.com/crenewsjan03.htm#nomura_wins

• CPDO and indices

I read about the CPDO product from ABN a few months ago on Wilmott

http://www.wilmott.com/messageview.cfm?catid=3&threadid=41740

and this type of product is said to be driving indices spreads below fair value

http://ftalphaville.ft.com/blog/2006/11/01/555/daily-report-credit-default-swaps-6/

• CDS futures on CME

The Chicago Mercantile Exchange are launching CDS futures

http://www.financialnews-us.com/?page=ushome&contentid=1045700409

http://www.ft.com/cms/s/635fc7c8-3ea0-11db-b4de-0000779e2340.html

http://www.wilmott.com/messageview.cfm?catid=3&threadid=39346