Fixed income risk analysis requires credit curves to be built from market prices, ideally for every issuer and seniority. In practice though, spread curves are often built for groups of issuers, usually by industry and rating, due to the lack of liquid data points. Where individual issuer curves are built, they are separated by currency due to apparent differences between trading of bonds in different currencies, and bond spread curves are built separately from credit default swap (CDS) curves.
Christoph Schon, CFA, will present a new approach for bootstrapping credit fixed income curves, building unified hazard rate curves for each issuer and seniority, by combining market prices of CDSs and bonds across multiple currencies. The individual issuer curves are then used to build more stable and robust market, sector and region curves. Comparing the issuers with these market curves in turn allows us to derive market-implied ratings.