标题: credit spread risk vs downgrade risk [打印本页] 作者: joehogue 时间: 2011-7-13 15:40 标题: credit spread risk vs downgrade risk
if spreads widen, does buying a credit spread call hedge the portfolio?
it certainly does in real life by buying cds on countries and companies!
i have seen binary puts in the schweser material but that was related to maintaining an IG portfolio.
buying a binary ratings put does not protect for spread widening without a downgrade , or am i missing something?作者: wake2000 时间: 2011-7-13 15:40
Binary put only payoff if an event happens, which could be a downgrade or a default or something else.
a credit spread call pays off the difference between the spread and the strike spread if the bond widens. So it is a hedge against spreads widening.
