Taking the option of profit by default

derivatives

The tremendous growth in the credit default swap (CDS) market is well documented. While much smaller than CDS, the market for credit 'swaptions' - options on single-name and index CDS - has also grown significantly over the past year or so.

Fitch set out to get a better understanding of what was currently happening in this market by surveying various broker-dealers involved in this product. We also looked at some of the unique structural features of these instruments.

Among the research's hig