Credit Default Swaps: A Primer and Some Recent Trends
Posted: 10 Dec 2020
Date Written: November 2020
Abstract
The credit default swap (CDS) remains an important class of derivatives contract despite the declining activity in the single-name corporate market. I provide a quick introduction to the contracts, the pricing formula used to interpret the market premiums, the development in trading volumes, and some key insights that are important for understanding its role in markets. I then take a closer look at the CDS-bond basis and the role of trading and regulatory frictions. Finally, the European sovereign debt crisis brought back in focus the notion of a quanto spread, which I explain.
Suggested Citation: Suggested Citation
Lando, David, Credit Default Swaps: A Primer and Some Recent Trends (November 2020). Annual Review of Financial Economics, Vol. 12, pp. 177-192, 2020, Available at SSRN: https://ssrn.com/abstract=3744664 or http://dx.doi.org/10.1146/annurev-financial-012820-013740
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