Download or read book The Negative Basis Credit Default Swap Contracts and Credit Risk During the Financial Crisis written by Matthias Schnare and published by GRIN Verlag. This book was released on 2011-10 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2010 in the subject Economics - Finance, grade: 5.0 (Schweiz), University of Zurich (Wirtschaftswissenschaften), language: English, abstract: The current developments in the credit or bond markets, influenced by the financial crisis and the economic downturn, revive a discussion about credit derivatives as an instrument of speculation and one cause or determinant of the financial crisis. Currently, CDS are used to speculate against the solvency of the different governments. Critics look at CDS contracts as Overthecounter (OTC) instruments that are not regulated and as bilateral contracts which can have a big influence on the financial position of market participants and on the real credit markets. CDS contracts are mainly instruments for investors to insure against a default of the debtor. For the seller of the CDS they are a possibility to participate in risks he perhaps could not have taken on the bond markets otherwise. These contracts separate the default risk of the debtor from the market conditions, e.g. the market interest rates. They make it possible to only trade the credit risk of a company or a country. Therefore, they can be instruments to proof the bond values and indicators for the real credit risk of the underlying. The discussion about CDS contracts is mostly a discussion including many prejudices and it deals with aspects from different topics which cannot be mixed. Therefore, a clear picture of advantages and disadvantages and especially values and risks of CDS is difficult to be found in the current public discussion and economic newspaper articles. A further phenomenon is that bond markets and CDS markets have lost their connection in the financial crisis. So the credit risk on both markets is valued differently: the prices on the two markets differed so much that market participants used these arbitrage possibilities to earn credit riskfree money for themselves and their customers It can be traded with a simple com

Download or read book Credit Default Swaps and their Role in the Financial Crisis written by Klaus Schütz and published by GRIN Verlag. This book was released on 2012-08-07 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2011 in the subject Economics - Finance, grade: A, Union Graduate College, course: Money, Markets and Banking, language: English, abstract: A credit default swap is essentially an insurance contract to hedge credit risk. It is a type of derivative whose value depends on the likelihood of a company defaulting. In this type of derivative two parties enter a contract where one party agrees to pay another in the event of a company defaulting on bond payments (also known as a credit event) for a premium or spread. CDS played a pivotal role in the recent financial crisis. It is also due to CDS that the crisis in the US housing market grew to a danger for the global capital markets. They were mainly responsible for the fall of insurance giant AIG and other turmoil over the course of the financial crisis. In this paper the nature and history of CDS is examinzed and their role in the financial crisis analyzed.

Download or read book Credit Default Swaps written by Marti Subrahmanyam and published by Now Publishers. This book was released on 2014-12-19 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt: Credit Default Swaps: A Survey is the most comprehensive review of all major research domains involving credit default swaps (CDS). CDS have been growing in importance in the global financial markets. However, their role has been hotly debated, in industry and academia, particularly since the credit crisis of 2007-2009. The authors review the extant literature on CDS that has accumulated over the past two decades and divide the survey into seven topics after providing a broad overview in the introduction. The second section traces the historical development of CDS markets and provides an introduction to CDS contract definitions and conventions. The third section discusses the pricing of CDS, from the perspective of no-arbitrage principles, structural, and reduced-form credit risk models. It also summarizes the literature on the determinants of CDS spreads, with a focus on the role of fundamental credit risk factors, liquidity and counterparty risk. The fourth section discusses how the development of the CDS market has affected the characteristics of the bond and equity markets, with an emphasis on market efficiency, price discovery, information flow, and liquidity. Attention is also paid to the CDS-bond basis, the wedge between the pricing of the CDS and its reference bond, and the mispricing between the CDS and the equity market. The fifth section examines the effect of CDS trading on firms' credit and bankruptcy risk, and how it affects corporate financial policy, including bond issuance, capital structure, liquidity management, and corporate governance. The sixth section analyzes how CDS impact the economic incentives of financial intermediaries. The seventh section reviews the growing literature on sovereign CDS and highlights the major differences between the sovereign and corporate CDS markets. The eighth section discusses CDS indices, especially the role of synthetic CDS index products backed by residential mortgage-backed securities during the financial crisis. The authors close with our suggestions for promising future research directions on CDS contracts and markets.

Download or read book The Fundamental Determinants of Credit Default Risk for European Large Complex Financial Institutions written by Jiri Podpiera and published by International Monetary Fund. This book was released on 2010-06-01 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper attempts to identify the fundamental variables that drive the credit default swaps during the initial phase of distress in selected European Large Complex Financial Institutions (LCFIs). It uses yearly data over 2004 - 08 for 29 European LCFIs. The results from a dynamic panel data estimator show that LCFIs’ business models, earnings potential, and economic uncertainty (represented by market expectations about the future risks of a particular LCFI and market views on prospects for economic growth) are among the most significant determinants of credit risk. The findings of the paper are broadly consistent with those of the literature on bank failure, where the determinants of the latter include the entire CAMELS structure - that is, Capital Adequacy, Asset Quality, Management Quality, Earnings Potential, Liquidity, and Sensitivity to Market Risk. By establishing a link between the financial and market fundamentals of LCFIs and their CDS spreads, the paper offers a potential tool for fundamentals-based vulnerability and early warning system for LCFIs.

Download or read book Pricing of Sovereign Credit Risk written by Mr.Emre Alper and published by International Monetary Fund. This book was released on 2012-01-01 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the pricing of sovereign credit risk over the period 2008-2010 for selected advanced economies by examining two widely-used indicators: sovereign credit default swap (CDS) and relative asset swap (RAS) spreads. Cointegration analysis suggests the existence of an imperfect market arbitrage relationship between the cash (RAS) and the derivatives (CDS) markets, with price discovery taking place in the latter. Likewise, panel regressions aimed at uncovering the fundamental drivers of the two indicators show that the CDS market, although less liquid, has provided a better signal for sovereign credit risk during the period of the recent financial crisis.

Download or read book Credit Default Swap Trading Strategies written by Wolfgang Schöpf and published by diplom.de. This book was released on 2010-07-23 with total page 82 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inhaltsangabe:Introduction: Credit default swaps are by far the most often traded credit derivatives and the credit default swap markets have seen tremendous growth over the past two decades. Put simply, a credit default swap is a tradeable contract that provides insurance against the default of a certain debtor. Initially, when the first form of a credit default swap (CDS) was traded in 1991, they were mainly used by commercial banks in order to lay off credit risk to insurance companies. However, focus shifted in the subsequent years as new players entered the market. Hedge funds became big players, money managers and reinsurers entered, and banks started to not only buy protection on their assets but also sell protection in order to diversify their portfolios. All this led to today s CDS market being dominated by investors rather than banks and, as a consequence, CDSs are now structured to meet investors needs instead of those of the banks. Over the same time as this shift to an investor orientated market took place, CDS markets grew at an astonishing rate with notional amount outstanding pretty much doubling every year until peaking in the second half of 2007 at USD 62,173.20 billions. The need to effciently transfer credit risk as well as the increasing standardization of CDS contracts by the International Swaps and Derivatives Association propelled this development. Only in 2008 did the notional amount outstanding in CDSs retract for the first time and come down to USD 31,223.10 billion in the first half of 2009. A partial reason was the full blown financial crisis in which CDSs also played a prominent role. The demise of Lehman Brothers, for example, triggered roughly USD 400 billion in protection payments and American International Group needed to be bailed out in 2008 because it had sold too much CDS protection. Amongst other concerns, these incidents highlight the systemic importance of CDSs. Combined with the phenomenal growth of CDS markets, this makes CDSs a highly relevant component of the current ?nancial environment and a fruitful subject for academic research. Today, just like most other financial instruments, CDSs serve a multitude of purposes spanning hedging, speculation, and arbitrage. The aim of this thesis is to explore these uses further and answer the following research questions: What CDS trading strategies are commonly used and how does a selection of these strategies CDS curve trades including forward CDSs, [...]

Download or read book Credit Default Swaps written by Christopher L. Culp and published by Springer. This book was released on 2018-07-12 with total page 331 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book, unique in its composition, reviews the academic empirical literature on how CDSs actually work in practice, including during distressed times of market crises. It also discusses the mechanics of single-name and index CDSs, the theoretical costs and benefits of CDSs, as well as comprehensively summarizes the empirical evidence on important aspects of these instruments of risk transfer. Full-time academics, researchers at financial institutions, and students will benefit from the dispassionate and comprehensive summary of the academic literature; they can read this book instead of identifying, collecting, and reading the hundreds of academic articles on the important subject of credit risk transfer using derivatives and benefit from the synthesis of the literature provided.

Download or read book Anticipating Credit Events Using Credit Default Swaps with An Application to Sovereign Debt Crises written by Mr.Jorge A. Chan-Lau and published by International Monetary Fund. This book was released on 2003-05-01 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: In reduced-form pricing models, it is usual to assume a fixed recovery rate to obtain the probability of default from credit default swap prices. An alternative credit risk measure is proposed here: the maximum recovery rate compatible with observed prices. The analysis of the recent debt crisis in Argentina using this methodology shows that the correlation between the maximum recovery rate and implied default probabilities turns negative in advance of the credit event realization. This empirical finding suggests that the maximum recovery rate can be used for constructing early warning indicators of financial distress.

Download or read book Pricing Credit Default Swap Subject to Counterparty Risk and Collateralization written by Alan White and published by GRIN Verlag. This book was released on 2018-03-26 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: Research Paper (undergraduate) from the year 2018 in the subject Business economics - Investment and Finance, grade: 10, , language: English, abstract: This article presents a new model for valuing a credit default swap (CDS) contract that is affected by multiple credit risks of the buyer, seller and reference entity. We show that default dependency has a significant impact on asset pricing. In fact, correlated default risk is one of the most pervasive threats in financial markets. We also show that a fully collateralized CDS is not equivalent to a risk-free one. In other words, full collateralization cannot eliminate counterparty risk completely in the CDS market.

Download or read book Credit Default Swaps Pricing Valuation and Investment Applications written by Panagiotis Papadopoulos and published by GRIN Verlag. This book was released on 2011-04-12 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2010 in the subject Business economics - Investment and Finance, grade: 67%, University of Westminster (Westminster Business School), course: Financial Derivatives, language: English, abstract: “A credit default swap (CDS) is a bilateral agreement designed explicitly to shift credit risk between two parties. In a CDS, one party (protection buyer) pays a periodic fee to another party (protection seller) in return for compensation for default (or similar credit event) by a reference entity”. Credit Default Swaps (CDS) are by far the most popular credit derivatives and have proven to be the most successful financial innovation. The structure of CDS is somewhat similar to the insurance policy. The market of CDS has heavily expanded and is traded in Over-The-Counter (OTC) market. This essay will briefly address the structure and the market of CDS, outlining its common products usage by some large institutions. Following the review of financial structure and pricing of CDS. And finally, this essay will also evaluate the risk management and investment applications of such products.

Download or read book The Pricing of Credit Default Swaps During Distress written by Jochen R. Andritzky and published by International Monetary Fund. This book was released on 2006-11 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: Credit default swaps (CDS) provide the buyer with insurance against certain types of credit events by entitling him to exchange any of the bonds permitted as deliverable against their par value. Unlike bonds, whose risk spreads are assumed to be the product of default risk and loss rate, CDS are par instruments, and their spreads reflect the partial recovery of the delivered bond's face value. This paper addresses the implications of the difference between bond and CDS spreads and shows the extent to which the recovery assumption matters for determining CDS spreads. A no-arbitrage argument is applied to extract recovery rates from CDS and bond markets, using data from Brazil's distress in 2002-03. Results are related to the observation that preemptive restructurings are now more common than straight defaults in sovereign bond markets and that this leads to a decoupling of CDS and bond spreads.

Download or read book The Role of Credit Default Swaps in Leveraged Finance Analysis written by Robert S. Kricheff and published by FT Press. This book was released on 2012-10-22 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: Normal 0 false false false MicrosoftInternetExplorer4 Credit Default Swaps (CDS) influence how bonds and loans trade and the relative value between bonds and loans. CDS can be the best way to hedge the risk of a corporate debt position and can also be a valuable investment tool in its own right. CDS has a multitude of nuances to it, from how its structured to how it is priced to how it is traded. If you are going to do analysis of corporate debt, especially in the leveraged finance market, you need to understand CDS. This booklet walks you through the basics of how CDS works, gives some perspective on how it has changed since the 2008 crisis and gives practical examples of how CDS is used and analyzed for corporate issuers. It is a valuable summary for anyone looking to do corporate credit analysis.

Download or read book The Financial Crisis Inquiry Report written by Financial Crisis Inquiry Commission and published by Cosimo, Inc.. This book was released on 2011-05-01 with total page 692 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Financial Crisis Inquiry Report, published by the U.S. Government and the Financial Crisis Inquiry Commission in early 2011, is the official government report on the United States financial collapse and the review of major financial institutions that bankrupted and failed, or would have without help from the government. The commission and the report were implemented after Congress passed an act in 2009 to review and prevent fraudulent activity. The report details, among other things, the periods before, during, and after the crisis, what led up to it, and analyses of subprime mortgage lending, credit expansion and banking policies, the collapse of companies like Fannie Mae and Freddie Mac, and the federal bailouts of Lehman and AIG. It also discusses the aftermath of the fallout and our current state. This report should be of interest to anyone concerned about the financial situation in the U.S. and around the world.THE FINANCIAL CRISIS INQUIRY COMMISSION is an independent, bi-partisan, government-appointed panel of 10 people that was created to "examine the causes, domestic and global, of the current financial and economic crisis in the United States." It was established as part of the Fraud Enforcement and Recovery Act of 2009. The commission consisted of private citizens with expertise in economics and finance, banking, housing, market regulation, and consumer protection. They examined and reported on "the collapse of major financial institutions that failed or would have failed if not for exceptional assistance from the government."News Dissector DANNY SCHECHTER is a journalist, blogger and filmmaker. He has been reporting on economic crises since the 1980's when he was with ABC News. His film In Debt We Trust warned of the economic meltdown in 2006. He has since written three books on the subject including Plunder: Investigating Our Economic Calamity (Cosimo Books, 2008), and The Crime Of Our Time: Why Wall Street Is Not Too Big to Jail (Disinfo Books, 2011), a companion to his latest film Plunder The Crime Of Our Time. He can be reached online at www.newsdissector.com.

Download or read book Credit Default Swap written by Gracia S. Ugut and published by Penerbit NEM. This book was released on 2024-04-15 with total page 201 pages. Available in PDF, EPUB and Kindle. Book excerpt: Credit default swaps and credit derivatives in general are one of the many specialized derivatives that are used for the purpose of hedging, speculation and arbitrage. The primary purpose of a credit derivative or the need behind the creation of such a product is to serve as a credit risk transfer mechanism. Credit risk is one of the four broadly classified types of risks (others being operational risk, market risk and liquidity risk) is the possibility of a loss resulting from a borrower’s failure to repay a loan or meet contractual obligations. Credit Default Swaps and Credit Derivatives gained popularity in the pre and during Global Financial Crisis in 2008. It has earned a bad reputation since then as it is perceived as one of the most dangerous financial derivatives. The decline in trading volume of emerging market sovereign CDS in the years since the 2008 global financial crisis, along with the steady rise in volume of emerging-market-bond ETFs, might have contributed to this increase in the relative efficiency of bond-price discovery. Credit-Default Swaps (CDS) were generally a better source of price discovery than spreads computed from bond prices. Credit-Default Swaps (CDS) tended to be a better measure of value compared to spreads computed from bonds, which may have been traded infrequently. However, since the COVID-19 crisis, the cash bond market appears to have made strong inroads as the better source for investors to compare relative value and risk.

Download or read book Credit Default Swap Spreads and Variance Risk Premia VRP written by Hao Wang and published by DIANE Publishing. This book was released on 2011-04 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Collateralized Debt Obligations written by Douglas J. Lucas and published by John Wiley & Sons. This book was released on 2006-05-05 with total page 533 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since first edition's publication, the CDO market has seen tremendous growth. As of 2005, $1.1 trillion of CDOs were outstanding -- making them the fastest-growing investment vehicle of the last decade. To help you keep up with this expanding market and its various instruments, Douglas Lucas, Laurie Goodman, and Frank Fabozzi have collaborated to bring you this fully revised and up-to-date new edition of Collateralized Debt Obligations. Written in a clear and accessible style, this valuable resource provides critical information regarding the evolving nature of the CDO market. You'll find in-depth insights gleaned from years of investment and credit experience as well as the examination of a wide range of issues, including cash CDOs, loans and CLOs, structured finance CDOs and collateral review, emerging market and market value CDOs, and synthetic CDOs. Use this book as your guide and take advantage of this dynamic market and its products.

Download or read book Credit Default Swaps written by Patrick Augustin and published by . This book was released on 2015 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: Credit default swaps (CDS) have grown to be a multi-trillion-dollar, globally important market. The academic literature on CDS has developed in parallel with the market practices, public debates, and regulatory initiatives in this market. We selectively review the extant literature, identify remaining gaps, and suggest directions for future research. We present a narrative including the following four aspects. First, we discuss the benefits and costs of CDS, emphasizing the need for more research in order to better understand the welfare implications. Second, we provide an overview of the post-crisis market structure and the new regulatory framework for CDS. Third, we place CDS in the intersection of law and finance, focusing on agency conflicts and financial intermediation. Last, we examine the role of CDS in international finance, especially during and after the recent sovereign credit crises.