Approximating CDX High-Yield Price from Spread and Duration

Summary

The document explains a rough way to estimate the price of a high-yield CDX index from its coupon, spread, and duration. The example uses a five percent coupon, a spread near 300 basis points, and duration around four years; applying duration to the coupon-minus-spread difference gives an approximate price of 108. This is presented as a first-order proxy, not a precise valuation.

For the market-standard conversion, the answer points to the ISDA CDS standard model, which calculates the official relationship between a spread quote and the upfront amount. Accurate use requires interest-rate curves from the relevant historical date. The note also mentions software and online conversion tools, but does not explain the model’s equations or provide a comparison of proxy errors. Its main lesson is that the simple duration formula can orient an estimate, while instrument pricing conventions and market inputs matter for a proper conversion.

Key ideas

• A duration-based coupon-minus-spread adjustment gives a rough CDX price estimate.
• The example’s first-order estimate is 108.
• The index is officially quoted as a price rather than a spread.
• The ISDA CDS standard model provides the market-standard spread-to-upfront conversion.
• Historical interest-rate curves should match the valuation date.

Tags

# How to convert CDX spread to price?


# How to convert CDX spread to price?












Example: assume the current HY CDX is with 5% coupon. The spread is around 300bps, with a duration of around 4 years.

Would you pls help me to understand why we can proxy the HY CDX price as 100+4*(5%-3%)=100+duration*(coupon-spread)=108 Thank you!

## Answer by Dimitri Vulis (score 2)

https://quant.stackexchange.com/a/63711

This "proxy" is too approximate, but is an OK first approximation. (By the way, CDX HY is "officially" quoted as price, not as spread.)

You need to run the ISDA CDS standard model. You can actually download an Excel add-in, but it would be a more useful exercise for you compile the C++ code. Then you you'll have the "official" conversion between the market standard quote spread and the upfront. Rememeber to use interest rate curves from the right historical date.

IHS Maikit provides a converter web page. You can plug in your spread and get the index price. Read the ISDA documentation to understand how it works.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.