Jump to default is a big part of the risk of trading CDS products. This explains why CDS Initial Margin algorithms tend to differ from those used for fixed income OTC products. They usually include components that look specifically at Wrong Way Risk credit spreads and interest rate risk as well as Jump to Default. In place of VaR they may use statistical modeling of credit spread and recovery rate fluctuations via a Monte Carlo Framework.


Margin Management Guide | What Are the Best Practices?
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