Laura Shalayeva IES 09069.  What does “credit derivative” mean?  Credit events  Market size  Types of credit derivatives  Credit default swap.

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Presentation transcript:

Laura Shalayeva IES 09069

 What does “credit derivative” mean?  Credit events  Market size  Types of credit derivatives  Credit default swap

Privately held negotiable bilateral contracts that allow users to manage their exposure to credit risk. Credit derivatives are financial assets like forward contracts, swaps, and options for which the price is driven by the credit risk of economic agents (private investors or governments).

 bankruptcy  failure to pay ( default on one of its obligations such as a bond or loan)  obligation default  obligation acceleration (the risk that an obligation of the reference entity will be accelerated e.g. a bond will be declared immediately due and payable following a default)  repudiation/moratorium (the risk that the reference entity or a government will declare a moratorium over the reference entity's obligations)  restructuring (the risk that obligations of the reference entity will be restructured).

 Total notional amount on outstanding credit derivatives was $35.1 trillion with a gross market value of $948 billion (April ISDA)  The "Worldwide credit derivatives market is valued at $62 trillion" (The Times, September 15, 2008)  London has a market share of about 40%, with the rest of Europe having about 10%

UnfundedFunded 1. Credit default swap (CDS) 2. Total return swap 3. Constant maturity credit default swap (CMCDS) 4. First to Default Credit Default Swap 5. Portfolio Credit Default Swap 6. Secured Loan Credit Default Swap 7. Credit Default Swap on Asset Backed Securities 8. Credit default swaption 9. Recovery lock transaction 10. Credit Spread Option 11. CDS index products 1. Credit linked note (CLN) 2. Synthetic Collateralised Debt Obligation (CDO) 3. Constant Proportion Debt Obligation (CPDO) 4. Synthetic Constant Proportion Portfolio Insurance (Synthetic CPPI)

 …. is a credit derivative contract between two counterparties. The buyer makes periodic payments to the seller, and in return receives a payoff if an underlying financial instrument default.

 … or TRS (especially in Europe), or total rate of return swap, is a financial contract which transfers both the credit risk and market risk of an underlying asset

For your attention!!!