The FE-635 syllabus turns to credit as a traded asset through credit default swaps. A CDS exchanges a premium leg for protection against a defined credit event. The buyer pays the spread while the reference entity survives and receives a loss payment after default, subject to the contract's recovery convention.
\nThe notes connect the CDS price to a survival curve and a recovery assumption. A quoted spread is therefore not a pure probability of default; it also contains funding, liquidity, and risk premia. The premium and protection legs must be discounted consistently and aligned on payment dates.
\nThis is why the risk-engineering workbook keeps instrument conventions explicit rather than hiding them behind a single “credit” input.
","contentMarkdown":"The FE-635 syllabus turns to credit as a traded asset through credit default swaps. A CDS exchanges a premium leg for protection against a defined credit event. The buyer pays the spread while the reference entity survives and receives a loss payment after default, subject to the contract's recovery convention.\n\nThe notes connect the CDS price to a survival curve and a recovery assumption. A quoted spread is therefore not a pure probability of default; it also contains funding, liquidity, and risk premia. The premium and protection legs must be discounted consistently and aligned on payment dates.\n\nThis is why the risk-engineering workbook keeps instrument conventions explicit rather than hiding them behind a single “credit” input.","dataUrl":"https://sharifhsn.dev/api/posts/cds-and-credit-markets.json","date":"2025-03-31","datePublished":"2025-03-31","description":"The FE-635 syllabus turns to credit as a traded asset through credit default swaps. A CDS exchanges a premium leg for protection against a defined credit event. The buyer pays the …","site":"https://sharifhsn.dev","slug":"cds-and-credit-markets","source":"FE-635 | Risk Engineering","sourceUrl":null,"tags":["FX","CDS","Credit Markets"],"title":"CDS and Credit Markets","url":"https://sharifhsn.dev/blog/cds-and-credit-markets/","version":"1","wordCount":116}