/ Fixed Income

Educational – Credit Default Swaps

By Pierre Moutounet-Cartan

Mostly made famous thanks to the subprime mortgage crisis ten years ago, Credit Default Swaps reached a top outstanding amount of $62 trillion in 2007, before falling to $26 trillion three years later. It is known to be the one of the only financial products to transfer credit risk.

Contents

  1. Definitions and main usages (Definition, Non-naked CDS, Naked CDS, Sovereign CDS)
  2. Example (Setting, No credit default, A credit default happens)
  3. Pricing (Market-to-market value, Finding the "Risky PV01")
  4. CDS Spread Curve (Definition, Analysis of high yield borrowers by sector and region, Investment banks remain solid, should not spark the next economic crisis)

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