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Tag Archive: CREDIT EVENT


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
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Credit Event

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.
    Continue reading

SALE

As I left the space to define the various types of credit derivatives so here we go:

Credit default swap: Credit default swap can literally be defined as an option to swap a credit asset for cash, should it default. A credit default swap is essentially an option, and option bought by the protection buyer, and written by the protection seller. The strike price of the option is the par value of the reference asset. Continue reading

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