Part III Investment Banking, 15 Credit Derivatives
- Credit derivatives — Credit default swap (CDS) — Bonds
15.01 Credit derivatives require special treatment in the trading as well as the banking book. The structure of a credit default swap (‘CDS’) is relatively straightforward—one party (the protection buyer) agrees that it will pay a fee to another (the protection seller). The operative part of the agreement is triggered if one of a number of events occurs in relation to an underlying entity (conventionally referred to as ‘defaults’, although these events include events which would not necessarily constitute defaults under a normal loan agreement). The underlying...