By diversifying concentrated credit risk to various economic entities, stabilization of the financial system can be achieved
Increase liquidity of reference assets: Credit derivative transactions may occur more than transactions for physical(real) assets (loans, bonds)
Various maturity and yield composite product can be design to meet risk-return structures of investors
Type | Description |
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CDS (Credit Default Swap) | A contract that Guarantor Buyer transfer credit risk and pays fee, Guarantee seller receives credit risk and fee |
Basket CDS | A contract that Guarantor Buyer transfer credit risk of a particular trench and pays fee, Guarantee seller receives credit risk of a particular trench and fee |
Credit Spread Option | CDS Spread based underlying option contract |
Forward Starting CDS | CDS Spread based underlying forward contract |
CLN (Credit Linked Note) | Bonds with CDS |
Synthetic CDO | instead of transferring underlying assets, a product that has structure of CDO by synthetic CDS |
CDS Index | Credit Index to tract down CDS Spread |
Leverage Skew Swap | Products traded basis of the differences between Index Spread and Intrinsic Spread |
TRS | Trade that exchange Total return of Bonds and base set rate + exchange of spread |
(R) MBS | Securitized mortgage-backed loans |
CMBS | Securitized commercial mortgage-backed loans |
CLO | Securitized Leveraged Loan (Junk Rating Loan) |
Type | Descriptio |
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Single CDS | Reduced Form Model (Hazard Rate Model) |
Basket CDS | 1-factor Gaussian Copular model |
CDO | LHP Model |