CDS Par Spread (Reduced-Form)
Computes the par (breakeven) spread of a Credit Default Swap in the reduced-form model with a constant hazard rate, setting the present value of the protection leg — which pays 1−R on default — equal to that of the premium leg. It shows the credit-triangle relationship s ≈ (1−R)·λ in practice. Enter the hazard rate, recovery rate, maturity, payment frequency and risk-free rate; the result is in basis points.
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CDS Par Spread (Reduced-Form)
Computes the par (breakeven) spread of a Credit Default Swap in the reduced-form model with a constant hazard rate, setting the present value of the protection leg — which pays 1−R on default — equal to that of the premium leg. It shows the credit-triangle relationship s ≈ (1−R)·λ in practice. Enter the hazard rate, recovery rate, maturity, payment frequency and risk-free rate; the result is in basis points.
Reduced-Form CDS Par Spread Calculator
A credit trader marking a five-year CDS at inception needs the spread that brings present value to zero for both sides of the trade. That is what this tool returns: the par spread of a Credit Default Swap in the reduced-form (intensity) model with a constant hazard rate. Reach for it to sanity-check a dealer quote, to back out a theoretical level from an implied default probability, or to see how much of the premium pays for default risk versus expected recovery.
The model treats default as the first jump of a Poisson process with intensity λ, so the probability of surviving to time t is exp(−λt). The protection leg is the present value of (1−R) weighted by the default density at each instant. The premium leg is the spread times the risky annuity — the PV01 — which sums discount factors against the probability of surviving to each payment date. Set the two legs equal, solve for s, and you have the par spread. Keep the assumptions in view: a flat, time-constant hazard, deterministic recovery, and a fixed risk-free rate. No upward-sloping credit curve, no stochastic intensity, no correlation.
Enter the hazard λ (or the default probability that implies it), the recovery rate R, the maturity in years, the premium payment frequency, and the risk-free rate. The output is the par spread, usually read in basis points per year, alongside the risky annuity used in the calculation. For a quick gut check, lean on the credit triangle: s ≈ (1−R)·λ. With λ = 2% and R = 40% that lands near 120 bps; the calculator's exact figure sits close, with a small adjustment from discounting and the spacing of premium payments.
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The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.