Conclusion: at the ‘Exit Checkpoint’

Indra Rajaratnam

31.1 THE HAZARD CALLED “RISK”

We have now reached the “Exit Checkpoint” of the expedition and can reminisce over the camera roll. The expedition not only focused on the theoretical review connected with a single-name CDS, but also examined the product through the lens of its economic and legal risks under the 2014 ISDA Credit Derivatives Definitions (henceforth the “2014 Definitions”; see International Swaps and Derivatives Association Inc. 2014b).

Risks are, without doubt, the by-product of investing in any financial instrument. They come in different shapes and sizes, with many familiar to the market, while others, such as crypto asset trading and climate change, constitute new challenges. While some risks are more intuitive and apparent, others can be unexpected and hidden.

The efficient operation and pricing of a CDS is dependent on the ability of investors to accurately assess default risk. Although active steps can be taken to control risks that are identifiable, this book has highlighted that risk takers are also plagued by the uncertain actions of reference entities. Furthermore, where there exists an activist investor, and/or where “narrowly tailored activities”

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