More info on Wikipedia
Quick Facts
- Invented by Cambridge graduate Blythe Masters while at JP Morgan.
- The initial borrower who may default is called the €śreference entity €ť.
- The €śseller €ť is the party who insures the credit and collects premiums.
- The CDS €śbuyer €ť is promised full payment if the borrower defaults.
- In early 2008 the outstanding CDS market was valued at $54 trillion.
Expert summary
Credit Default Swaps are credit derivatives which resemble a type of insurance for holders of credit risk. In a Credit Default Swap there are at least three parties involved: the initial borrower, the insurer of the credit risk, and the buyer of the credit risk. The “buyer” purchases the credit swap and is guaranteed a large payoff from the “seller” if the borrower defaults. However, in return for providing this guarantee, the “seller” of the swap collects periodic payments from the “buyer” in return for assuming the risk of the default. Unlike insurance, the CDS market is almost entirely unregulated with almost no requirements to either hold or disclose assets to cover possible claims on defaults.
Recommended content by 2 experts
-
CDS Crisis Article
An excellent article by F. William Engdahl about Credit Default Swaps and the possibility of a financial crisis. -
NY Regulates CDS
Article from Sept 2008, when NY decided to regulate certain types of Credit Default Swaps. -
ISDA Website
The International Swaps and Derivatives Association, Inc. provides information on the CDS market and a largely positive point of view.
-
-
Malibu and Credit Default Swaps
This talks about the trillions of dollars that have been sold in Credit Default Swaps -
Credit Default Swap Crisis
This video shows how the credit default swap has played a major role in the 2008 financial crisis.
-
What is a Credit Default Swap?
This image explains how a credit default swap works like a football side bet. -
Credit Default Swap Chain
This is a perfect image that shows the flow of credit default swaps through the insurance and banking system. -
Simple Credit Default Swap
This shows a simple example of a Credit Default Swap using General Motors.
-
Credit Default Swap Basis
This book goes over many of the financial instruments used along side Credit Default Swaps. -
Chain of Blame: How Wall Street Created the Mortgage and Credit Crisis
This brings to light some of the fundamental flaws in the system that led to the mortgage and credit crisis. -
CDS Delivery Option: Better Pricing of Credit Default Swaps
This book explains credit default swaps and how the CDS market has exploded in recent years.
Refine your search
- Add additional tags to your search
- banks (8)
- credit default swaps (5)
- economy (5)
- money (5)
- credit (5)
- insurance (5)
- CDS (3)
- loans (2)
- banking (2)
- Crisis (2)
Related Gemzies Pages
2 experts, 26 entries