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Derivatives

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  • December 30, 2022
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Capped CMCDS

A constant maturity credit default swap (CMCDS) in which the rate is capped at a specific level. This swap combines an interest rate cap with a CMCDS. The value of the underlying cap can be viewed as a portfolio of payer credit swaptions struck at the level of the cap and with maturities coinciding with the reset dates. The value of these swaptions (swap options) is translated into a higher participation rate for capped CMCDSs compared with uncapped ones.


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