Credit derivatives: the past, the present and the future
The determinants of credit spread returns
What’s driving the default swap basis?
What is the value of modified restructuring?
The debt and equity linkage and the valuation of credit derivatives
Nth to default swaps and notes: all about default correlation
Portfolio credit risk models
Credit derivatives as an efficient way of transitioning to optimal portfolios
Overview of the CDO market
Synthetic securitisation and structured portfolio credit derivatives
Integrating credit derivatives and securitisation technology: the collateralised synthetic obligation
CDOs of CDOs: art eating itself?
Extreme events and multi-name credit derivatives
Reduced-form models: curve construction and the pricing of credit swaps, options and hybrids
Modelling and hedging of default risk
ISDA’s role in the credit derivatives marketplace
Credit linked notes
Using guarantees and credit derivatives to reduce credit risk capital requirements under the New Basel Capital Accord
A BRIEF HISTORY
The credit derivatives market saw its earliest trades in 1993, when CSFB and the then Bankers Trust were transacting basket structures to lighten up credit exposures to the banking and sovereign sector. A few other banks followed suit in 1994, driven by, among other things, the desire to hedge sovereign credit exposures resulting from long-dated cross-currency swaps on the back of sizeable sovereign borrowings. With hindsight, it seems ironic that the market was kicked off by the hedging of swap-related credit exposures using first-to-default structures – two products that are still considered complex in today’s market.
While the products of then and now may look the same, beneath the surface things are very different. The pricing, trading, booking, valuation and reporting of credit derivatives has changed beyond recognition. Hundreds of trades can now be executed in one day (rather than one trade taking hundreds of days), and the breadth of application goes way beyond the ad hoc hedging needs of the early nineties.
The change in end users has been more obvious as entire new sectors of the financial markets join the rapidly growing credit derivatives market.