Credit Default Swaps: Past, Present, and Future

25 Pages Posted: 27 Oct 2015

See all articles by Patrick Augustin

Patrick Augustin

McGill University, Desautels Faculty of Management

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance

Dragon Yongjun Tang

The University of Hong Kong - Faculty of Business and Economics

Sarah Qian Wang

University of Warwick - Warwick Business School

Date Written: October 14, 2015

Abstract

Credit default swaps (CDS) have grown to be a multi-trillion-dollar, globally important market. The academic literature on CDS has developed in parallel with the market practices, public debates, and regulatory initiatives in this market. We selectively review the extant literature, identify remaining gaps, and suggest directions for future research. We present a narrative including the following four aspects. First, we discuss the benefits and costs of CDS, emphasizing the need for more research in order to better understand the welfare implications. Second, we provide an overview of the post-crisis market structure and the new regulatory framework for CDS. Third, we place CDS in the intersection of law and finance, focusing on agency conflicts and financial intermediation. Last, we examine the role of CDS in international finance, especially during and after the recent sovereign credit crises.

Keywords: agency conflicts, asset pricing, CDS, credit risk, derivatives, market structure, sovereign debt

Suggested Citation

Augustin, Patrick and Subrahmanyam, Marti G. and Tang, Dragon Yongjun and Wang, Sarah Qian, Credit Default Swaps: Past, Present, and Future (October 14, 2015). Available at SSRN: https://ssrn.com/abstract=2677885 or http://dx.doi.org/10.2139/ssrn.2677885

Patrick Augustin

McGill University, Desautels Faculty of Management ( email )

1001 Sherbrooke Street West
Quebec
Montreal, Quebec H3A 1G5
Canada

HOME PAGE: http://www.patrickaugustin.se

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance ( email )

Stern School of Business,
44 West 4th Street, Suite 9-68
New York, NY 10012-1126
United States
212-998-0348 (Phone)
212-995-4233 (Fax)

Dragon Yongjun Tang

The University of Hong Kong - Faculty of Business and Economics ( email )

KKL 1004
Pokfulam Road
Pokfulam
Hong Kong
(852)22194321 (Phone)

Sarah Qian Wang (Contact Author)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

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