Suppose that you want to construct a 3-year/5-year steepenin…
Suppose that you want to construct a 3-year/5-year steepening trade on the credit curve of a particular reference entity. The spread DV01 on $10 million notional of the 5-year CDS is $4500, and the spread DV01 on $10 million notional of the 3-year CDS is $3000. If you trade $10 million notional of the 5-year CDS, what notional amount of 3-year protection should you buy or sell (to the nearest $1000)?