A CDS is traded on a 10-year 8% coupon corporate bond as reference obligation. The CDS trades at a credit spread of 650 basis points. The CDS has a duration of 9 years. The high-yield referenced obligation has a CDS coupon of 5%. 10-year US Treasuries yield is 1.3%. 

(a) What is the upfront premium on this CDS? 

(b) How would you perform a basis trade and what is the additional return?

Answer rating: 100% (QA)

a To calculate the upfront premium on this CDS we can use the formula Upfront Premium Credit Spread ... View the full answer