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I cannot seem to find a simple listing of the current market standard definitions for US Single name Corporate Credit Default Swaps (CDS) so I’m going to put a list here. I have found a sample term sheet circa 2004 from NYU/Stern which is useful. The problem is that between the various quantitative descriptions of how to value a credit default swap and the contractual descriptions of what constitutes a credit default swap there is a missing descriptive piece that scrupulously enumerates what data is specifically needed to actually value a credit default swap. Quant treatments typically dismiss this as an exercise for the reader in the quest for wider applied math scope. The ISDA/Contractual folks similarly want to be as complete as possible so they typically lean towards presenting a catalog of every possible data field. There are several different markets that trade credit default swaps each with their own set of market conventions. There are various conventions for US Corporates, European Corporates, Emerging Market, CDS hedges to CDX, Loans , Preferreds, etc. The trick is, if you want to reproduce market prices you need to use the appropriate conventions. For example, US Corp CDS pay premium quarterly whereas a Brazil Sovereign CDS is going to pay premium semiannually. The CDS Trade conventions presented below are applicable to understanding JPM Quantitative Research group analytics available via 2009 JP Morgan/ISDA Open Source agreement. Credit mag took a shot here in 2005; and FT-IDC still closer here;
- Value Date: T
- Trade Date: Negotiated
- Effective Date: Trade Date + 1
- Definitions: ISDA 2003
- Calendar: US
- Day Count Basis: ACT/360
- Premium Frequency: 4 IMM roll dates per year- 20Mar, 20Jun, 20Sep, 20Dec modified following
- Currency: US Dollar
- Coupon Accrual on Default: YES
- Libor Curve: Market level USD Libor term structure mark; BBA;
- Credit Spreads: Market level – term structure mark
- Recovery Rate: Market level – typically constant mark
- Deliverable Debt Class: Senior Debt
- Credit Event: Modified Restructuring, Bankruptcy, Failure to Pay
- Premium: negotiated; Points upfront;
- Notional: negotiated
- Maturity Date: negotiated – in given year one of the IMM roll dates – 20Mar, 20Jun, 20Sep, 20Dec modified following
- Termination Delivery: Physical Settlement
1860 Poor’s History of Railroads and Canals in the United States;
1909 Moody’s;
1913 Fitch Investors Service
1916 Standard Statistics begins assigning debt ratings
1941 Merger produces Standard & Poor’s Corporation
1964 CUSIP;
1986 Bloomberg L. P.; BBA LIBOR; ANSI SQL Standard;
1994 Cantor&Packer: The Credit Rating Industry; FInancial Information Exchange (FIX); TIBCO Reuters acquires Teknekron;
1995 Netscape IPO;
2001 MarkIt credit derivative pricing; 6th ed. ISO6166 ISIN standard;
2002 RED Reference Entity Database; Moody’s KMV; Enron Rating Agency summary; TRACE
2004 Data Warehouse tools ETL;
2005 ICMA;
2006 BMA and SIA merge to SIFMA;
2008 Rating Agency Deceptions & Failures;
2009 Langohrs: The Rating Agencies and Their Credit Ratings Mar09;
Need: Reference Data: IBM; Issuers-Reference Entities: RED; Tickers: Bloomberg; Corporate Actions: DTCC, Oxera; Securities: CDS; Issuer and bond ratings: Moody’s; Corp Bond prices: FINRA – TRACE; Loan prices: LPC; CDS spreads: References; Upfront spreads; Recovery Rates: References; Historic bond defaults and recoveries: Moody’s 1903 -1993; Credit Market Size: size of the CDS market NY and LN; Size of the Corp Bond Mkt NY and LN; size of the Loan mkt NY and LN; Risk Country; Counterparties: Central clearing; CDS market conventions (single name corporate) US, EUR; FX spot rates: FT; Rates Market Size: size of the rate derivative market LN and NY; size of the Gov market Euro and US; Rating Agencies: Tavakoli, Generally Accepted Ratings Principles, CFO coverage; Sector and Industry classifications: ICB, GICS, NAICS; Vendors: Markit, Bloomberg, IDC, Reuters, Thompson, Dun&Bradstreet, S&P, Telekurs.
