Bootstrap approach for CDS spreads

In this blog we consider the hazard (or default) rate implied by Credit Default Swaps (CDS). In specific we compare a simplified CDS-spreads-based model against a bootstrap procedure. Surprisingly we find that the simplified approach works well in the current low-interest rate market. Our findings are based on a piecewise linear hazard rate curve. The nodes for these curves are obtained using either the simple model or the bootstrap approach.

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