Posted: January 4th, 2016

”Is a portfolio consisting of Probabilities of Default a good proxy for a portfolio consisting of CDS prices?

“Is a portfolio consisting of Probabilities of Default a good proxy for a portfolio consisting of CDS prices?”. The concept here is to get the PDs from Moody’s for an amount of stocks(preferably S&P500 stocks), put them in a portfolio. Then take the CDS 1Y prices for the same stocks and put them into another one. Then use 2-3 models(one should be BASEL 2 model as prof said and the other 1-2 could be your choice) to compute the expected/unexpected loss of these two portfolios, compute credit portfolio risks etc