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A note on replicating a CDS through a repo and an asset swap

Lorenzo Giada and Claudio Nordio

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Abstract: In this note we show how to replicate a stylized CDS with a repurchase agreement and an asset swap. The latter must be designed in such a way that, on default of the issuer, it is terminated with a zero close-out amount. This break clause can be priced using the well known unilateral credit/debit valuation adjustment formulas.

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Date: 2013-04
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