The Credit Default Swap Basis

PREFACE

This is a book about the credit default swap basis. It is not a book about credit default swaps, much less a book about credit derivatives, a subject that is the focus of a great many books these days.¹ Of course it closely concerns credit default swaps—or rather, one particular aspect of their trading, analysis, and performance—and so readers should be familiar with the credit default swap (henceforth CDS) as a financial instrument. But it is not a book about the CDS per se. It is about an aspect of CDS behavior that is, whether appreciated by them or not, of importance to all users of CDS products. This is the basis, which can be loosely defined as the relationship between the cash and synthetic credit markets.

A basis exists in all ...