Credit derivatives trading investing and risk management pdf
Chaplin Geoff. Credit Derivatives: Trading, Investing and Risk Management [PDF] - Все для студентаIn finance, a derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset , index , or interest rate , and is often simply called the " underlying ". Most derivatives are traded over-the-counter off-exchange or on an exchange such as the New York Stock Exchange , while most insurance contracts have developed into a separate industry. In the United States , after the financial crisis of —, there has been increased pressure to move derivatives to trade on exchanges. Derivatives are one of the three main categories of financial instruments, the other two being stocks i. The oldest example of a derivative in history, attested to by Aristotle , is thought to be a contract transaction of olives , entered into by ancient Greek philosopher Thales , who made a profit in the exchange. Derivatives are contracts between two parties that specify conditions especially the dates, resulting values and definitions of the underlying variables, the parties' contractual obligations, and the notional amount under which payments are to be made between the parties.
CFA Level I: Derivatives - Risk Management Applications of Option Strategies LOS A
Credit default swap
A credit default swap CDS is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default by the debtor or other credit event. The buyer of the CDS makes a series of payments the CDS "fee" or "spread" to the seller and, in exchange, may expect to receive a payoff if the asset defaults. In the event of default, the buyer of the CDS receives compensation usually the face value of the loan , and the seller of the CDS takes possession of the defaulted loan or its market value in cash. However, anyone can purchase a CDS, even buyers who do not hold the loan instrument and who have no direct insurable interest in the loan these are called "naked" CDSs. If there are more CDS contracts outstanding than bonds in existence, a protocol exists to hold a credit event auction. The payment received is often substantially less than the face value of the loan. Credit default swaps in their current form have existed since the early s, and increased in use in the early s.
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