Default swaptions: the next frontier

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The structural increase in credit volatility in the past 18 months, coupled with increasing credit default swap (CDS) volumes is boosting interest in options on default swaps. “A handful of firms are now active in this market and are trying to get a generic options business started,” says the head of investment-grade credit derivatives at a US firm, who spoke to Risk on condition of anonymity. “Even if they doubt that the underlying [CDS] market can support a significant options business, they

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