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Tag Archive: CDS


Market Efficieny : Anomaly from CDS and Loan CDS

Filed under: Efficient Markets — Leave a comment
May 20, 2013

There was a unique study done recently paper titled “MARKET EFFICIENCY AND DEFAULT RISK: EVIDENCE OF AN imagesANOMALY FROM THE CDS AND LOAN CDS MARKETS” by Lawrence Kryzanowski, Stylianos Perrakis and Rui Zhong.

The findings where significantly positive pricing-parity deviations from a simulated portfolio that simultaneously participates in opposite legs of the undervalued and overvalued contracts in the CDS and LCDS markets for exactly the same underlying firm, maturity, currency and restructure clauses. These deviations cannot be accounted for by trading costs, illiquidity or imperfect data about recovery rates in the event of default, suggesting segmentation between CDS and LCDS markets. View full article »

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CDS, Bonds and Basis Trade

Filed under: Financial Crisis — 1 Comment
May 17, 2013
The crisis has given the birth to new jargon’s and terminologies in the world of financial market, I had tried to
English: The Broker at the Verizon Centeraccumulate few of them from various sources:

  • [h]ypothecation is when a borrower pledges collateral to secure a debt. The borrower retains ownership of the collateral but is “hypothetically” controlled by the creditor, who has a right to seize possession if the borrower defaults.
In the U.S., this legal right takes the form of a lien and in the UK generally in the form of a legal charge. A simple example of a  is a mortgage, in which a borrower legally owns the home, but the bank holds a right to take possession of the property if the borrower should default. View full article »
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6 Months The Ban on Naked CDS in Europe

Filed under: Economies, Financial Crisis — 2 Comments
April 30, 2013

The FT has recently done a timely article-on the consequences of the EU‘ ban on the naked CDS.

Blythe Masters, painted portrait Credit Defaul...

Investors are buying protection on European banks on the basis that banks and sovereigns are so intimately linked that any increased risk of a sovereign default will increase the value of a bank CDS in a similar way to a sovereign CDS.
“The big downside of the ban is that it is likely to increase borrowing costs for financials,” said Michael Hampden-Turner, Citigroup credit strategist. View full article »

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Credit Event

Filed under: Efficient Markets — 1 Comment
March 9, 2013

What’s a credit event? It’s a difficult question. Dealbreaker is exercised on this, or more specifically on the issues with imagesCDS protection holders getting paid on some unusual credit-event-like happenings:

  • There are bonds.
  • You buy CDS that is supposed to pay off if something goes wrong with the bonds.
  • Something goes wrong with the bonds, insofar as they poof into some weird garbage-y thing or assortment of garbage-y things.
    View full article »
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Credit Derivative Swap Index Tranche: School-To-College

Filed under: Financial Crisis — 1 Comment
January 29, 2013

imagesWe all have heard of CDS (Credit Derivative Swap) But, how many of us have the real idea & concept of CDS cleared with us? I guess very few people. So, here we are ready with our today`s blog which will talk about CDS, its basic concept & origin with its structurally enhanced form/product known as CDX-”Credit Derivative Index Tranche” .

Meaning: In finance, a credit derivative refers to any instrument and technique designed to separate and then transfer the credit risk of the underlying loan. It is a securitized derivative whereby the credit risk is transferred to an entity other than the lender. View full article »

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Collateralized Debt Obligation – Back to school

Filed under: Finance Awareness — 7 Comments
January 18, 2013

In simple terms a CDO is the debt issued by a specially incorporated entity (SPV) to finance the purchase of assets.( CDOdownload also refers to the SPV ). Typically the assets are bonds, loans, mortgages and receivables. Entity holds the assets as collateral and sells packages of cash flows to investors.

CDO has 4 aspects:-

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How did the credit market turn into an insurance market?

Filed under: Financial Crisis — 2 Comments
January 6, 2013

imagesWell it seems like actual credit investing failed so insurance policies were invented to get rid of actual cash flow and collateral analysis.
There was no need to do any research. Just buy a default insurance policy.
The funny part is the banks created and sold default insurance policies to hedge funds and they couldn’t manage their own books. makes sense
That’s why the government needs to shut down the hedge fund View full article »

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CDS, Bonds Or Basis Trade :

Filed under: Finance Awareness — 1 Comment
December 19, 2012
AzYiLc_CAAAg5opThe ongoing  crisis since 2008 have given the birth to lot of new jargon’s and terminologies in the world of financial market, I had tried to accumulate few of them from various sources and then will highlight an arbitrage strategy.
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Lehman Brothers Failure : (Back to School)

Filed under: Finance Awareness, Financial Crisis — Leave a comment
September 9, 2012

 

 

How can a bank like Lehman go down so fast?
FINANCIAL markets can be punishing and reversal of fortunes can be dramatic. More so, if an institution is overleveraged — when loan and investment books are much, much bigger than its capital. What compounds problems are strange accounting practice and high-risk nature of the loans and investments. There are also disclosure issues: Lehman, in its last conference call with investors, gave no clue View full article »

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CDS and Exotic Options

Filed under: Finance Awareness — 4 Comments
August 4, 2012

Ever heard of exotic options, like barrier, knock-out, and knock-in options. Lets try to distinguish them.

In finance, a barrier option is an exotic derivative typically an option on the underlying asset whose price breaching the pre-set barrier level either springs the option into existence or extinguishes an already existing option.

Where the option springs into existence on the price of the underlying View full article »

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