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credit curve spikes

RussianMike

Joined
5/9/06
Messages
296
Points
26
Hi,

Does anyone deal with credit curves extensively?

I'm trying to get around the problem of having a spike in the credit curve

Lets assume the below is the curve I'm dealing with, though the problem occurs most often in 6M 1Y.

6M 100
1Y 120
2Y 125
3Y 110
4Y 130
5Y 135
7Y 150
10Y 160
15Y 175
20Y 200
30Y 225

If anyone has any thoughts/ideas I would appreciate it.

Regards,
Mike
 
Heh. I knew you must be using either MarkIT or CMA.
If you use CMA, you can select another curve as they provide many marks during the day from different dealers.
As for MarkIt, they only provide ONE end of day, cut the top, bottom, average middle quotes (or so I heard).
Also, keep in mind that MarkIT is providing from 6M to 30 year quotes and we all know that names mostly trade with 5Y, 10Y maturity. So everything you see except the 5,10Y term is based on their internal interpolate/extrapolate algorithms. (CMA does the same thing for 1,2,3,7Y)
So unless you must use the full term structure for your model, you can just use their 5Y and 10Y spreads. When things like what you posted happens, you can either use your own interpolation or just take average of 2Y and 4Y. Or use the data from previous, next date to see what happens. If all fails, call the MarkIt guy to let him know.

By the way, how do you access MarkIt data at work? Is it in a local database you can query or you access it online?
 
Thanks Andy. MarkIt can be accessed online. I'm trying to get away from manipulating the data we get. To me it speaks of a structural flaw in current models everyone is using
 
I don't think you can take the data AS IS. There are plenty of wrong out there. For example, when you get a credit curve from Markit, you will see that it's slopping upward while the real curve is inversed.
By the way, one of the incoming Baruch students is working at MarkIt and knows the credit data so you may want to get in touch with him. I have been in contact with him so if I have any question, I just shoot him an email directly instead of going through the tech support people. It's a small world out there ;)
 
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