PV accrued interest for CDS


#1

Dear all,
I read the paper by OpenGamma “The Pricing and Risk Mgt of CDS” and I do not understand one bit of the formula (17) written on page 8. I do not get why DCC curve (si, ei) intervenes in the formula. Since ACT/360 relative to the DCC accrual is already taken into account, I do not understand why the DCC related to the curve must be considered. Could you please help me on that.

Many thanks for your help,
Kind regards,
Quentin


#2

DCC(si,t) in (16) is the year fraction between a date si and a date t computed with ACT/360, whereas t, si in (17) respectively represent the year fraction between the trade date and the date t, and the year fraction between the trade date and the date si, computed using ACT/365. This conversion causes the extra factor of 365/360.


#3

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