PT - JOURNAL ARTICLE AU - Xinjie Wang AU - Hongjun Yan AU - Zhaodong (Ken) Zhong TI - Biases in CDS Spreads after the CDS Big Bang AID - 10.3905/jfi.2020.1.095 DP - 2020 Jun 30 TA - The Journal of Fixed Income PG - 71--80 VI - 30 IP - 1 4099 - https://pm-research.com/content/30/1/71.short 4100 - https://pm-research.com/content/30/1/71.full AB - The International Swaps and Derivatives Association (ISDA) credit default swap (CDS) standard model assumes a single flat hazard rate (default intensity) rather than a term structure of hazard rates. This assumption introduces biases into CDS spreads for empirical research after the CDS Big Bang. This article is the first to document the biases and provide a simple correction scheme. We quantify the biases using a large panel of CDS data for the period from April 2010 to October 2016. The correction is important for measures based on differences in CDS spreads, such as CDS-bond basis.TOPICS: Credit default swaps, credit risk managementKey Findings• The flat hazard rate assumption in the International Swaps and Derivatives Association, Inc., credit default swap (CDS) standard model introduces biases into CDS spreads for empirical research after the CDS Big Bang.• We provide a simple correction scheme to address the biases.• The correction is important for measures based on differences in CDS spreads, such as CDS-bond basis.