CDS and CDS Index

A Credit Default Swap (CDS) is a financial instrument that provides the ability to manage credit risk. The protection seller agrees to compensate the protection buyer when the specified legal entity suffers a default. The protection seller is paid a regular premium until the expiry of the CDS contract or until the defaults. As such, CDS can be viewed as a form of insurance against the default of a specific legal entity.

The Strata CDS instrument follows the ISDA standard.

A CDS Index is a standardized financial derivative that contains a basket single name CDS.

Key classes

A CDS is represented in Strata using the Cds class. The Cds class stores details of the product that was agreed. The trade details are stored in CdsTrade class.

CDS products are relatively standard, so the CdsConvention is a good way to create one:

CdsTrade cdsTrade = CdsConventions.USD_STANDARD.toTrade(
    StandardId.of("OG-Entity", "RISKY_CORP"),  // entity that might default
    TradeInfo.of(LocalDate.of(2017, 6, 23)),   // trade date
    LocalDate.of(2017, 6, 21),                 // start date
    LocalDate.of(2019, 6, 12),                 // end date
    BuySell.BUY,                               // whether buying protection, or selling it
    1_000_000,                                 // notional
    0.012);                                    // fixed rate of 1.2%

A CDS Index is represented in Strata using the CdsIndex class. Most of the details are the same as a CDS.

TIP: The strata-loader project provides the ability to load a CDS from FpML and CSV (CDS and CDS Index).

Risk measures

The strata-measure module provides high-level risk measures for CDS.

The strata-pricer module provides lower-level pricing support for CDS:

• IsdaCdsTradePricer, see Javadoc.
• IsdaCdsProductPricer, see Javadoc.

For CDS Index, see:

• IsdaHomogenousCdsIndexTradePricer, see Javadoc.
• IsdaHomogenousCdsIndexProductPricer, see Javadoc.