The fair price of a CDS contract on a reference bond is equivalent to that of a spread on a floating-rate bond issued by the same entity as the reference bond and that

Question

Quizplus · Accepted Answer

All three properties listed above are important in determining the fair price of a CDS contract. A spread on a floating-rate bond issued by the same entity as the reference bond with the same seniority and maturity as the CDS contract and trading at par provides a good benchmark for the fair price of the CDS contract. Therefore, option D is the best choice as it includes all three properties.

The Fair Price of a CDS Contract on a Reference