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Tag Archive: Credit derivative


Yesterday I was going through some of the Indian newspapers and surprised to see some articles on Indian debtblog-3 market, which is a very rare scenario where the Indian market is dominated by equities. May be it was more a tax saving investment as the equity market where more volatile and IPOs were flopped.

Whereas the developed world debt market dominates where the bond market, has experiences gains and losses in response to cyclical interest-rate, It’s like business cycle during which an economy expands, contracts and recovers could be termed as market cycle.

Before getting back to the Indian bond market let’s try to see the key components of Fixed Income securities, it’s the Credit quality, yield, and maturities are key components of fixed-income securities.
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Wall Street Sales Pitches

Sharing  some one liner sales pitches that became famous on Wall Street and people should really avoid them & mostblog of them used by many advisory firms and they have embraced a culture of sales and monthly quotas. If you find these pitches be afraid it’s a caveat…..

  1. “It’s like a CD.”
  2. “Buying on margin will greatly increase your returns.”
  3. “This fund did really well last year.”
  4. “As long as the music is playing, you have to get up and dance.”
  5. “Do you want the confirmation sent to your office or your mansion?” Continue reading

813530What’s a credit event? It’s a difficult question. Dealbreaker is exercised on this, or more specifically on the issues with CDS 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.
  • You can scoop up garbage-y things to your heart’s content, but the contract doesn’t let you deliver them into CDS in a way that achieves the sensible result.
  • Sensible Result = Face Value of Bond minus Value of Package of Garbage-y Things You Got For Your Bond
  • So you get less than Sensible Result, and are screwed, and the CDS seller has a windfall.  Continue reading

People write to remember things, I write to forget. I am sure that definitely had many post on Credit derivatives.Many of my friends imagesand colleagues are still not so familiar with them and just wanted to define for them . For them the understanding of credit derivatives is that these monster was behind the subprime crisis in 2008, Lehman crisis, and later the Eurocrisis and now the Grexit.

Let me try to put some definitions quote and unquote:

” Credit derivatives is a general term used to describe various swap and option contracts designed to transfer credit risk on loans or other assets from one party, the protection buyer, to another party, the protection seller. The protection seller receives premium or interest-related payments in return for contracting to make payments to the protection buyer,which are linked to the credit standing of a reference asset or assets. ” FSA UK  Continue reading

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. Continue reading

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