Credit markets

Sovereign CDS: Cat or canary?

Sovereign credit default swaps have become magnets for controversy amid worries about the condition of government finances. Does the market really reflect the probability of default and has too much attention been paid to it?

Bilateral counterparty risk with application to CDSs

Previous research on credit valuation adjustments (CVAs) with correlation between underlying and counterparty default, including volatilities of both, assumed unilateral default risk. However, the crisis prompted counterparties to ask institutions to…

Individual names in top-down CDO pricing models

The Gaussian copula collapsed as a means of pricing collateralised debt obligations in the crisis of 2008, as to match prices and deltas nonsensical correlation parameters were required. By adapting the traditional framework to cater for more general…

Profiting from CDOs

Investors that snapped up cash bonds and other simple credit assets at the start of last year have made large profits as the credit market rallied strongly in 2009. While many of the obvious credit opportunities have disappeared, some market participants…

CDS tested to the limit

Auctions to settle credit default swaps on media firm Thomson in October tested both the small bang protocol and the nerves of dealers. The outcome puzzled some market participants, while others have called for the removal of restructuring as a credit…

A market model on the iTraxx

A market model for the dynamics of credit-risky baskets and indexes such as the iTraxx has long been sought, but because of difficulties with the natural numéraire has remained elusive. Here, Philippe Carpentier proposes using hedging arguments to…

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