Chapter 16
USD Asset Swap Spreads versus Credit Default Swaps
Introduction
While in Chapter 15 we ventured into the rather new territory of statistical CDS analysis, this chapter deals with the widely discussed fundamental link between the CDS and the bond it covers. At the beginning we shall briefly and intuitively deduct the common no-arbitrage relationship USD ASW = CDS. Since a comprehensive description of that relationship has been given already by several authors, we shall focus on the connection of the no-arbitrage condition to other topics of our book.
A principal problem of the no-arbitrage relationship USD ASW = CDS is that it assumes both sides of the equation to be pure reflections only of the credit risk. As we have shown in Chapter ...
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