Hedging Emerging Market Bonds and the Rise of the Credit Default Swap
Frank S. Skinner
Brunel University; University of Surrey - School of Management
Surrey Business School
April 16, 2007
International Review of Financial Analysis, Vol. 16, No. 5, 2007
On October 5, 2001, when credit spreads were widening, the Chicago Mercantile Exchange CME de-listed the full menu of emerging market Brady bond futures contracts. This is intriguing because at a time when interest in hedging and speculating in emerging market sovereign credit risk should be at its peak, the CME de-listed precisely the sort of contract designed to hedge and speculate in sovereign credit risk. This paper finds statistical evidence suggesting that the developing over the counter CDS contract acted as a substitute product for the Brady bond futures contract thereby undermining the Brady bond futures contract and contributing to its demise.
Number of Pages in PDF File: 30
Keywords: Emerging market bonds, Credit default swap, Brady bonds, Futures contracts, Hedging
JEL Classification: G13, G15, G24Accepted Paper Series
Date posted: August 8, 2012
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