Credit default swap payments are usually made quarterly in arrears. So the higher the probability of default, the more the seller of protection needs to worry about a credit event taking place before any income has been received from the swap. Therefore, credit default swaps on single names and tranches with spreads higher than about 500 basis points tend to trade on a points-up-front basis. In other words, the spread or a portion of the spread is present-valued and paid upfront. If only a portion of the spread is paid upfront, there is still a running spread to pay.
There is no market standard for when a credit starts trading upfront and there is no market standard for whether the spread is fully or partially paid upfront. For example, in February 2006, just before it defaulted, Dana was quoted at 35/37.5 points up front. This meant a trader could sell $10 million of protection and receive an initial payment of $3.5 million.
Another example of upfront amounts is in equity tranche trades. The market standard for the 0-3% iTraxx and CDX IG tranches is to pay a portion of the spread upfront and 500bp running. As the 500bp running is constant, prices for the equity tranche are quoted based on the upfront amount. Again, this is due to the high probability of experiencing a loss on the equity tranche. (As losses occur, the 500bp payment remains the same but it is now calculated on the reduced notional.)
Index swaps also trade with exchanges of upfront amounts. This is because the standardisation of the index contract extends to the contractual spread, which is fixed at the launch date for each series. So, if the contractual spread is fixed at 30bp but the market value is now 40bp, the seller of protection will receive only 30bp under the contract. The seller needs to be compensated for the 10bp difference between the contract and the market by receiving the present value of 10bp running.