Talk:Credit derivative

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Cleanup (almost) complete[edit]

Evitavired here. This page has real potential. I've made a few amendments, which I hope don't cause offence. I think that the securitisation section is only relevant to the extent that it captures funded credit derivatives. In particular synthetic CDOs, CPPI, CPDOs etc., and that the distinction should be between funded and unfunded products. I've been working with credit derivative products for over 10 years now, and am a lawyer, so appreciate that my viewpoint may be different. I would love to build out the credit derivatives section of this site, and can add a lot of materials, and hope to work constructively with others here.

The section on securitization is repeated verbatim on several related pages. You should be able to remove it while retaining a link to the main securitization page, or to the securitization transaction page. Finnancier 03:22, 7 July 2007 (UTC)
I wikified the definition section, but it still needs work. Any suggestions? (The definition of a derivative belongs on its own separate page.) Finnancier 05:31, 7 July 2007 (UTC)

Evitavired again. Agreed. I deleted the securitisation section, as this material should be set out under securitisation. I will add a funded and unfunded credit derivatives section. We should probably also set up links to other pages such as synthetic CDOs and some new generation credit derivatives products. Please get in touch if you feel that I shouldn't have deleted the securitisation section and we can debate. Thanks

Evitavired perhaps this page should act as a central credit derivative portal from which there should be links to all of the other credit derivatives products e.g. single name CDS, portfolio CDS, CDOs, loan recovery CDS. As well as the the relevant ISDA documentation. Does anyone have any thoughts?

I agree. The structure you propose should work well. Right now, the current page repeats too much of what is available elsewhere. Finnancier 14:07, 23 July 2007 (UTC)

Evitavired Thanks, I've made a few more changes and we're getting there, will get into creating sub-pages for the different types of product soon.

Moving information to sub-pages[edit]

I removed some of the info on CDS pricing because there is a more thorough explanation on the credit default swap page. Finnancier 13:34, 3 July 2007 (UTC)

Could we also move each of the sections to their own respective pages, e.g. total return swap, credit linked notes? It will stop editors from adding to the main credit derivative page instead of contributing important information to the main sub-pages. For example, the CDS section keeps on growing even though there is a main CDS page. Finnancier 03:28, 7 July 2007 (UTC)


The first sentence of this article begins with an open-ended quotation that needs to be closed off. Mujep4 20:50, 5 November 2007 (UTC)

Should discuss the problem of CDS's valuation approximation using risky bond position.

I eliminated the language about how pricing is "relatively easy" using arbitrage arguments. It made me wonder: relative to what, neurosurgery? --Christofurio 13:45, Apr 27, 2004 (UTC)

There seem to be a few problems with this page:

1. Seems to be a bit too much of a definition of a Credit Default swap, rather than a generic credit derivative. Of course CDS are by far the most common instrument now, but all the same.

2. There are many other reasons why a CDS is not priced the same as a corporate bond, not least of which is the embedded cheapest to deliver option and funding.

3. The arbitrage is actually quite difficult to implement, given the practicalities of small repo market

4. [bit about coupons being quarterly to match bonds] CDS usually pay coupons quarterly, but most European corporate bonds pay annually and most USD corporate bonds. It's only really FRNs that pay quarterly.

What is a credit asset? 00:22, 5 October 2005 (UTC)

Index CDS What's about Index CDS products?

The following paragraph appears weird and sounds like at least aprts of the text were taken from a potentially copyrighted document. Somebody should at least rewrite the section. "It is these latter structures that are important for this course, but we need to revisit the principles of securitisation in general to be able to understand the more complex products."

Merkurrr (talk) 02:54, 15 October 2008 (UTC) There is a problem with the securitiztion image/diagram as it shows cash flows going from the borrower before AND after securitization. One of the flows has to go TO the borrower.

The diagram only shows cashflow after the initial loan was made, so only interest and principle payments are shown, not the original loan. Owen× 18:39, 15 October 2008 (UTC)

Securitization Main page[edit]

There was some great stuff on Securitization in this article that I incoprorated into the Securitization main page I had created.

Becuase of this I am deleting most of the securitization stuff --DrewWiki 17:18, 24 January 2007 (UTC)

Imprecise waterfall[edit]

The description of the waterfall is imprecise. The current wording is the A Tranche takes the first loss. In fact, the A Tranche sits atop all other claims against the assets, and therefor it has first call on the assets. It is in fact the LAST to take a loss. It is the safest. The D or Equity Tranche take the first loss, and get the residual cash flows from the assets. The D (equity) are at the bottom of the waterfall. 16:28, 21 April 2007 (UTC) TK

As someone who has Zero understanding of derivitives I feel as though I came away from this article none the wiser. An easy to understand example would really be a help, particularly in the first section. The following if where it is explained what a credit derivative is in its "simplest form" but it doesnt seem to be so simple to me:

"Credit derivatives in their simplest form are bilateral contracts between a buyer and seller under which the seller sells protection against certain pre-agreed events occurring in relation to a third party (usually a corporate or sovereign) known as a reference entity; which affect the creditworthiness of that reference entity. The reference entity will not (except in certain very limited circumstances) be a party to the credit derivatives contract, and will usually be unaware of the contract's existence."

What type of pre-agreed events? Sells protection?

Thanks (talk) 08:11, 15 February 2008 (UTC)

Acronyms and jargon: please spell out[edit]

I agree with the above "Zero understanding... none the wiser" commenter above. Please could someone at least spell out the acronyms, and in addition describe what the heck is a "reference entity". Thanks! —Preceding unsigned comment added by (talk) 00:20, 23 February 2008 (UTC)

Evitavired - I put some info in to address your comments. I can add a hypothetical example if need be, but I'm not sure if that would fit in with Wikipedia policy. The page still needs some work, but I think that it's getting there. —Preceding comment was added at 20:15, 1 March 2008 (UTC)

Estimation of Credit Derivative Value[edit]

Hi all, hey I am reading this essay by James Lieber "What cooked the world's Economy" and in that report it states that these derivatives now (January 2009) are measured at a gross value of 596 Trillion dollars. Either the number of default swap purchases has increased 10 fold in 6 months, with an insured level 20 times market capitalization, or something is a miss. I am not going to add this information to the main page, only to let you guys know its out there and where you can find it and scrutinize it.PB666 yap 22:25, 3 February 2009 (UTC)

Recent History[edit]

This page desperately needs discussion of credit derivatives' role in the recent economic collapse. —Preceding unsigned comment added by (talk) 07:47, 19 February 2009 (UTC)

Origins of credit derivatives

There should be a history section on the subject, i.e. mentioning the "Morgan Mafia", Robert Reoch, Blythe Masters etc. —Preceding unsigned comment added by (talk) 09:06, 21 June 2009 (UTC)

I am prepared to help bring it up to date. Is anyone else interested ? I do note that one "authoritative source" is a Lehman Brothers guide, which although valid does indicate that we're not quite in the present day yet.

DominicConnor (talk) 15:02, 16 March 2011 (UTC)

Dicussion, is it really a derivative?[edit]

As I understand a derivative must have its value indexed (or be a function) of the price of an underlying. What are these underlying prices for credit "derivatives"? (talk) 16:55, 22 May 2013 (UTC)

The underlying is the loan itself, e.g. the the securitized mortgages, corporate bond, etc. Owen× 19:26, 22 May 2013 (UTC)

Assessment comment[edit]

The comment(s) below were originally left at Talk:Credit derivative/Comments, and are posted here for posterity. Following several discussions in past years, these subpages are now deprecated. The comments may be irrelevant or outdated; if so, please feel free to remove this section.

This is an important subject, especially in view of the role credit derivatives have played in the 2007 financial crisis. Some of the data and references are dated, but I think it well worth spending the time to up-date this and related articles regarding specific credit derivatives.

Last edited at 16:42, 21 February 2009 (UTC). Substituted at 12:24, 29 April 2016 (UTC)