PROCEDURE FOR BOOTSTRAPPING HAZARD RATE FROM NEWLY-ISSUED CREDIT-DEFAULT-SWAPS

ASSUMPTIONS

1. There are newly issued and actively traded credit default swaps of different maturities.
2. The the maturity time for the first credit default swap is one year.
3. The difference in maturity between successive credit default swaps is one year. It is possible that the current stock of credit-default-swaps do not satisfy the one year difference maturity. In such a case, objective approximation methods and curve-fitting should be used to get the values break-even spreads at appropriate maturities.
4. The hazard rate is assumed constant within a particular year and different between years in a way consistent with differences in spread payments for credit default swaps of different maturities.
5. The resultant hazard rate curve is therefore time varying but step-wise constant within a particular year.
6. The spread payment frequency is set at four times per year consistent with most common frequency on index based credit default swaps.
7. This programme boot-straps hazard rate for up to ten years into the future.
8. Follow the view-page-by-view-page bootstrapping instructions below.

Financial solutions home page

1. Log into your account or if you are a new user, register your account and enable two factor authentication.
2. Click on the [Bootstrapping hazard rate] button, this will take you to the Dynamic-text-blocks parameters page.

Dynamic text-blocks parameters page

1. Select to enter time-varying or flat risk-free zero rates at possible default times.
2. Select the number of credit default swaps used in bootstrapping hazard rate.
3. Click the submit button, and this will take you to the array populating page.

Array populating page

1. Enter continuously compounded risk-free zero rates at possible default times.
2. Click the submit button, and this will take you to the Bootstrapping hazard rate parameters page.

Bootstrapping hazard rate parameters page

1. Enter the name of reference entity.
2. Select the name of currency of valuation from the drop-down list.
3. Enter the recovery rate assumption.
4. Enter the spread payments in basis points for indicated credit-default-swaps.
5. Click the submit button and this will take you to the output display page.

Output display page

1. You can view pricing model output together with input parameters you entered.
2. At the bottom of the page you can click on the button to create database record for the current model output. This will take you to the create database record page where you should click on the create button to create the database record.
3. After clicking on the create button to create the database record, you will be taken to the database records view page, where you can scroll vertically or horizontally to view database records including the one you just created.
4. You can filter database records according to the currency of valuation using the filter box. You can click on the details link on the extreme right of a particular database record, this will take you to the particular database record details page.