We then put this cash into our cash account. To compensate us for the fact that the contract has a negative value we must be paid an upfront amount equal to The 132bps is a measure of the credit risk of the CDS. This is negative because we are receiving 100bps to assume a risk for which we should be receiving 132bps. The value of the Protection leg is therefore In your example this is 132 basis points. The CDS par spread is the spread that would make the value of the contract with the same maturity equal to zero right now.

We call the PV of $1 per year paid to a credit event or maturity, whichever occurs sooner, the risky PV01 or RPV01 for short. V = 100 bps x PV of $1 per year paid to sooner of a credit event or maturity - Protection Leg PV Hence the value of $1 a short protection (receiving spread) contract is A CDS is a contract with a protection leg that pays (100%-Recovery) immediately following a credit event if it happens before maturity, and a premium leg in which a coupon of 100 bps is paid until a credit event or maturity.

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