An Introduction to Credit Derivatives by Moorad Choudhry

By Moorad Choudhry

Juvenile popular culture references, an inconsistent "compilation of my notes" writing kind, steeped within the jargon of mounted source of revenue, susceptible insurance of comparable securities outdoors of the asset classification (EDS vs. vanilla call), and stupifyingly overpriced given its breadth and size. this can be relatively a hard-backed magazine paper that are supposed to be bought in basic terms with somebody else's money.

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Extra resources for An Introduction to Credit Derivatives

Example text

As with credit default swaps, credit-linked notes maybe specified under cash settlement or physical settlement. Specifically: • • under cash settlement, if a credit event has occurred, on maturity the protection seller receives the difference between the value of the initial purchase proceeds and the value of the reference asset at the time of the credit event; under physical settlement, on occurrence of a credit event, the note is terminated. At maturity the protection buyer delivers the reference asset or an asset among a list of deliverable assets, and the protection seller receives the value of the original purchase proceeds minus the value of the asset that has been delivered.

Reproduced with permission. 22: Bloomberg page ASW for British Telecom 7% 2007 bond, as at 12 August 2003. P. Reproduced with permission. 23: Bloomberg page CDSW used to value CDS contract for British Telecom traded in May 2002 as at 12 August. P. Reproduced with permission. 8 Settlement Credit derivative settlement can follow one of two routes, specified at deal inception. We consider these here. With all credit derivatives, upon occurrence of a credit event, a credit event notice must be submitted.

Obligation default Obligations of the reference entity have become capable of being declared due and payable before they otherwise would have due to a default other than a failure to pay. Repudiation/moratorium A reference entity or government authority rejects or challenges the validity of the obligation. Restructuring and modified restructuring A reference entity agrees to a capital restructuring (such as a change in a loan obligation's seniority), deferral or reduction of loan, change in currency or composition of a material debt obligation such as interest or principal payments.

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