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Credit Derivatives Market Overview with Focus on Collateralized Debt Obligations - Essay Example

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Credit Derivatives Market Overview with Focus on Collateralized Debt Obligations

As the report declares credits risks are assumed by varied players in today's credit markets. These include. These include banks, government Agencies, corporates, securities companies, pension funds, insurance companies, fund managers, hedge funds etc. All of these entities have a calculated and strategic need to assume, reduce or manage credit risks and therefore the credit derivatives markets have typically players comprising of these entities. However the economic or regulatory motives of each of these entities differ because they have different market positions and are governed by varying regulations.
This paper stresses that credit derivatives are the products which involve the transfer, in part or entirety, of the credit risk of a credit obligation, without in any manner resulting in transference of the ownership of the reference credit product. As the conditionalities governing the basic credit products are evolving into sophisticated and fine tuned structures resulting in varying, splitting and multi-timing of credit risks so are the derived credit derivative products turning diverse and complex almost making for a robust and vibrant credit derivatives' market. Credit default swaps have turned really popular instruments in present day's credit derivatives' market. CDS are bilateral contracts agreeing to transfer the credit risk of one or more reference entities. The buyer of protection is therefore in a position similar to that of a short seller of a bond issued by the reference entity, and the market price of the CDS mirrors the degrees of risk inherent in the underlying credit asset. ...Show more


This paper analyses the credit derivative products and their markets in terms of product characteristics and broad methodology in structuring such products. A preliminary measure of credit derivatives' market is made identifying the major participants and achieved market sizes. …
Author : yosthalle
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