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Derivatives

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Spread DV01

It captures the change in the market value of the credit default swap (CDS) position as a result of a one basis point shift along the par CDS curve of a given reference entity (with other things held constant). It is the dollar value of a one basis change in the credit spread (i.e., CDS premiums).

In other words, spread DV01 measures the change in the mark-to-market (MTM) value of a given CDS as a result of a one basis point change in the CDS quotation.

The formula of a spread DV01 is:

Spread DV01 = – (Δ MTM), for 1 bp in credit spread.

A positive spread DV01 means that the CDS position will shed value in response to a 1 basis point upward shift in the CDS seller’s spread curve.


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