HI
I have a general question about the understanding of CDS and volatility.
Consider the following simple example: I own a portfolio with one corporate bond in it. Then I want to hedge the credit risk of the bond an buy a CDS for it.
Then I calculated the volatility (period - 1 year, e.g. 250 trading days) of my simple portfolio and found out that my volatility has risen compared to the portfolio with just the bond.
Has this something to do with the correlation of the CDS spread and the swap curve?
Thanks
I have a general question about the understanding of CDS and volatility.
Consider the following simple example: I own a portfolio with one corporate bond in it. Then I want to hedge the credit risk of the bond an buy a CDS for it.
Then I calculated the volatility (period - 1 year, e.g. 250 trading days) of my simple portfolio and found out that my volatility has risen compared to the portfolio with just the bond.
Has this something to do with the correlation of the CDS spread and the swap curve?
Thanks
