Hello guys, I have a question regarding the Cheapest-to-deliver notion (Study Session 39 - Credit Default Swaps). Can you confirm that my thought process is correct?
When, we have several bonds, and we need to find which one is the cheapest-to-deliver (CTD) in order to calculate a CDS payoff. 1) First, we look at the bond seniority. We need to find a bond that has the same seniority as the reference obligation. 2) Then, we look at the one which is trading at the lowest par level. Can you confirm that number 2 is correct?
Regards,