To purchase a credit default swap
, the buyer makes "a single upfront payment, or possibly a series of payments, in exchange for the counterparty's obligation to make ...
The insurance business world piled in to insure all this stuff again with last time's catalyst - Credit Default Swaps
. Whoever gets left holding the policy baby will be unable to pay out on them - it's just too much.
New users should educate themselves about the credit default swap
In 2007, the notional value (face value of underlying assets) of credit default swaps
had reached $62 trillion, more than the combined gross domestic product of the entire world ($54 trillion), (104) although the actual amount at risk was only a fraction of that amount (approximately 3.5%).
If I were the risk manager of a publicly traded self-insurer, I would call the Security Fund to find out how credit default swaps
could slash my collateral costs.
As in a house fire, where the insurance covers only the damage on the house, a credit default swap
covers the "damage" caused by the default.
Now if you throw a credit default swap
on, which you could buy cheaply from AIG, you can invest more of your depositors' money.
The Superintendent Goes to Washington--On October 14th New York Superintendent of Insurance Eric Dinallo spoke at a hearing in Washington held by the Senate Committee on Agriculture, Nutrition, and Forestry about credit default swaps
. It seems odd that the testimony would come before that Senate committee in particular because these complex financial instruments have little to do with farming, nutrition or trees.
A credit default swap
allows you to transfer this credit risk to another market participant for a price.
This report discusses (1) differences between the pricing of loan commitments and loans, and assesses data that are available about the trading of loan commitments; (2) the extent to which credit default swaps
are used to reduce the credit risk from loan commitments, and what credit default swap
prices indicate about the prices of loan commitments; and (3) differences between commercial and investment banks' accounting treatment of loan commitments, and the strengths and weaknesses of fair value accounting.
GFInet, a leading creator of independent online markets, has brought out its Credit Default Swap
Mark-To-Market (MTM) service, making GFI's actual market price data available to the "mid-office" -- a layer between the trader and the back-end settlement systems -- for the first time.
Subordinated Notes (A-/Stable, the collateral asset) and Codelco (A-/Stable, the reference entity of the transaction's credit default swap
); restructuring is selected as a credit event on Codelco in the transaction's credit default swap