Points upfront

A convention for trading credit default swaps with wide spreads. The credit default swap spread is present-valued and paid by the protection buyer to the protection seller at the start of the trade. Alternatively, a portion of the payments may be present-valued and paid upfront, with the remainder paid as a conventional running spread. Trading points (percentage points of the notional) upfront eliminates or reduces the risk that a credit event takes place before the protection seller has received any income from the credit default swap. Typically, names start to trade with points upfront once their spreads rise above about 500 basis points. 0-3% index tranches also trade with points upfront in addition to a running spread.