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
DEVELOPMENT OF THE MARKET
The collateralised debt obligation (CDO) market has grown from virtually nothing in the early 1990s to a market growing at an annual rate of over US$150 billion rated notes per annum. The CDO or collateralised bond obligation (CBO) market, as it was initially, grew out of the junk-bond market meltdown of the early 1990s. After that market recovered, there was no new issuance for a period of five years or so, from which there was an explosion of issuance. So, although the market has been technically in existence since the late 1980s, the real growth occurred from the middle 1990s (see Figure 1).
The CDO-of-CDO market, or CDO-squared market, was a natural extension of the market much the same way CMOs extended the mortgage market. The technology can be used for a number of different purposes, including arbitrage, repackaging risk and capital arbitrage. The CDO-of-CDO market did not develop until the late 1990s and was pioneered originally by the ZING transactions by the ZAIS Group.
CDOs, particularly the mezzanine tranches, proved to be ideally suited to being repackaged