Credit Default Swaps: Contract Conventions, Spread Data, and Credit Risk
Summary
The document responds to questions about standard credit default swap contracts, interpreting very high quoted spreads, finding bank spread data, and assessing counterparty creditworthiness. It cautions that derivatives are flexible rather than fully uniform, while citing an insurance amount as a convention encountered in CDS markets. It also suggests that unusually large spreads may be observed for distressed entities, including European banks or a company affected by a major disaster.
For data, the answers point to commercial market information providers and a database reporting daily spreads for hundreds of entities over multiple years. They also mention counterparty risk tools as a way to explore protections beyond CDS. The responses provide leads, not a full account of contract terms, spread interpretation, or alternative credit controls. They do not substantiate the quoted extreme spread levels or detail how to use CDS spreads as standalone measures of bank creditworthiness.
Key ideas
- CDS contracts are flexible instruments, so a single universal contract size should not be assumed.
- Very high spreads may reflect severe perceived credit distress and merit checking against the entity and market context.
- Commercial providers and historical databases can supply CDS spread information for many entities.
- Counterparty risk assessment and protection can involve tools and controls beyond buying CDS protection.
- The discussion offers data leads but does not provide a complete framework for interpreting spreads or judging creditworthiness.
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# Answer by jeff m (score 4) # What is a standard credit default swap contract and where can I find spread data? What alternatives exist to judge creditworthiness? I'm doing some work for a company and one of my tasks is to research credit default swaps on banks and to write a page about them explaining what they are and how they're used to evaluate the banks' credit-worthiness. After doing a bit of research on them I have a few questions: - What are the terms of a standard CDS contract? I know they were standardised after the financial crisis but is there a standard size / length now? - I've been looking at some data for countries' CDS spreads and I'm pretty sure that sometimes the CDS spread went over 10000 basis points, which is over 100% per annum. Surely that can't be right, or have I completely mis-read it? - Does anyone know where I can find CDS spread data for different banks in the UK? The information doesn't seem to be searchable on Bloomberg and it's very difficult to find elsewhere. - What are the other ways that companies / banks look at the credit-worthiness of other banks in order to protect their exposures apart from CDSs? ## Answer by jeff m (score 4) https://quant.stackexchange.com/a/3853 Markit is a pretty good source for CDS information, and their prices are pretty much the standard the industry goes by. Your best bet for finding large spreads would be to look at some of the European Banks or possibly TEPCO after the Japan Tsunami. Derivatives by default aren't "standard," the instruments are designed to be flexible, but the closest thing to a standard I've seen in CDS is cost to insure 10M or 10,000. Relating to your last question, this demo of Panopticon's counterparty risk software will show you some other ways banks hedge counterparty exposure. Here is a daily report on the biggest movers you can subscribed to have e-mailed everyday: Another good CDS site. ## Answer by mic (score 3) https://quant.stackexchange.com/a/18198 Here is another Credit Default Swap database which is rather extensive, daily spreads of roughly 700 entities starting in 2006.
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