Credit Curves & CDS

Model default risk with CreditImpliedCurve using piecewise flat hazard rates, and price credit protection with CDS instruments against risk-free discount and credit curves.

Credit Curves

A CreditImpliedCurve models default risk through piecewise flat hazard rates. Nodes map dates to hazard rate levels, and the curve computes survival probabilities -- the likelihood that the reference entity has not defaulted by a given date. The act360 convention is standard for credit markets.

credit_curve.survival_probability(datetime.date(2027, 6, 16))  # 0.9779413739743786
credit_curve.survival_probability(datetime.date(2030, 6, 16))  # 0.9371403492367462

CDS Pricing

A CDS (Credit Default Swap) provides protection against default. The buyer pays a quarterly fixed premium (in basis points) and receives a payout if the reference entity defaults. Pricing requires two curves: a risk-free discount curve and a credit curve. Note that fixed_rate is in basis points -- 100.0 means 100bp (1%).

cds = CDS(
    effective=effective,
    termination="5y",
    frequency="q",
    fixed_rate=100.0,
    recovery_rate=0.4,
    convention="act360",
    notional=10_000_000.0,
)

float(cds.npv(disc_curve, credit_curve))     # -105585.47418774274
float(cds.rate(disc_curve, credit_curve))    # 76.38869933298339
float(cds.spread(disc_curve, credit_curve))  # -23.611300667016607

Next Steps

• Bonds -- Settlement-aware bond analytics, duration, convexity, and spread measures
• Spread Analytics -- Interpolated swap spreads (I-spread) and asset swap analysis