20

Credit Derivatives

LEARNING OBJECTIVES

After completing this chapter, you will be able to answer the following questions:

  • What are credit derivatives?

  • What is the purpose of credit derivatives?

  • What is a credit default swap?

  • How are credit default swaps settled?

  • What is a total return swap?

  • What are the uses of a total return swap?

  • What are credit options?

  • What are the uses of credit options?

  • What are credit-linked notes?

BOX 20.1 The USD 55 Trillion Question

Credit default swaps (CDSs), a form of credit derivatives, trade in a big and unregulated market about which most people have not heard and a very few who understand. It is expected that the next financial disaster could arise due to these credit default swaps. In a period ...

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