On 24 of november, 1yr CDS for GM hit 22.656,30 (Bloomberg data mid price, bid price is 20.012,30, ask price 25.300,30). Can anyone explain this please! I thought the upper limit for CDS was 10.000 (or 100%), since it makes no sense to pay more than 100% for the protection for a bond that pays off 100% at maturity. Thanks!
It means the market is pricing in that GM defaults before the year is up.
Yep - suppose that you thought the probability of a GM default between now and April was 70% and the recovery value was 50%, what should the CDS sell for?
JoeyDVivre Wrote: ------------------------------------------------------- > Yep - suppose that you thought the probability of > a GM default between now and April was 70% and the > recovery value was 50%, what should the CDS sell > for? How do you calculate this? Not including any present value calculations, I’d say at least 14,000 basis points so a quarterly CDS payment covers the expected default payout in April.
there’s this great knowledge base called the Internet; e.g. http://en.wikipedia.org/wiki/Credit_default_swap