Credit Default Swaps

Credit Default Swaps - Credit default swaps Gene Oslekov,...

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Gene Oslekov, Tara Graves, Jessica McCord, Nicholas Smith Credit default swaps
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What are Credit Default Swaps(CDS) Credit Default Swaps (CDS) are the most widely used type of credit derivatives It is similar to insurance because it provides the buyer of the contract, who often owns the underlying credit, with protection against default, a credit rating downgrade, the mid-2007, the value of the market had ballooned to an estimated $45 trillion, over twice the size of the U.S. stock market the credit risk of municipal bonds, emerging market bonds, mortgage- backed securities(MBS) , It is important to note that the CDS contract is not actually tied to a bond, but instead references it.
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The interest rate on the bonds is 8% annually Guarantee against negative “credit event” AAA rating Privately owned institution Ford pays $800 000 per year to the investors Purchasing CDS, paying an annual premium of 1% B rating want to invest money in Ford company They buy bonds for 10 million dollars Bear Stearns doesn’t have to pledge collateral, rather they get the deal because of their AAA rating.
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Credit Default Swaps - Credit default swaps Gene Oslekov,...

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