Credit derivatives
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…
Fair-value freeze in Japan
Corporates and financial institutions have long awaited the introduction of the internationally accepted fair-value option to hedge accounting in Japan. They believe a fair-value option would allow more institutions to hedge their risks, particularly in…
A state of flux
Efforts to improve the risk architecture for the derivatives business in Asia appear more muted than elsewhere, with many regulators in the region taking a wait-and-see approach towards central counterparty. But, as Duncan Wood reports, there are some…
Credit spread shocks: how big and how often?
The second half of 2007 saw violent moves in credit spreads. In the fallout, there has been much discussion about how to estimate the probabilities of these severe events, but few conclusions have been obtained beyond the fact that historical data is…
Big bang: new dawn for CDS market
The 'big bang' protocol, which changes the way credit derivatives are quoted and traded, may have brought a CDS exchange one step closer
Japanese exchanges move to set up CCPs next year
Risk mitigation systems for over-the-counter derivatives set to go live in 2010
BCBS releases valuation and leverage report
Daily news headlines
Politicians clamour for OTC derivatives reform
Regulatory News
Isda launches CDS protocols for Icelandic bank settlement
Daily news headlines
Testing times
Editor's letter
Gamma loss and prepayment
Peter Jackel presents a model for the dynamics of fractional notional losses and prepayments on asset-backed securities for the valuation and risk management of derivatives, including waterfall structures and other structured debt obligations on bespoke…
Let's jump together: pricing credit derivatives
Joao Garcia, Serge Goossens and Wim Schoutens introduce a dynamic multivariate jump-driven model for credit spreads. The model parameters come from a calibration on swaptions and a correlation-matching procedure. The authors apply the model to credit…
Explaining the Levy base correlation smile
Joao Garcia and Serge Goossens look at base expected loss at maturity both in the Gaussian copula and Levy-based models, and link it to base correlation in these frameworks. They report on the existence of smile in both base correlation curves and…
A trick of the credit tail
Leveraged super-senior (LSS) trades represent a mechanism for packaging senior credit risk. Many LSS structures have been issued to date and yet there seems to be no formal pricing approach. In this article, Jon Gregory discusses the valuation of LSS…