Credit Default Swaps: The Vanilla Essence
In Credit Default Swaps: The Vanilla Essence, Indra Rajaratnam provides an invaluable guide to the multifaceted risk considerations highlighting the importance of aligning risk management with product behaviour. This book should appeal to credit default swaps (CDSs) specialists within investment banking, risk management, asset management, product research, and professionals in the hedge fund and insurance sectors. Similarly, regulators, lawyers, academics and students can benefit from clarification of key technical concepts and understanding the behaviour of CDSs for the purposes of risk management.
In fast-paced financial environments with pressures on deal execution, and regulator focus on accountability-based governance, it’s important that financial and risk professionals understand the behaviour of credit default swaps (CDSs) for the purposes of risk management, when trading, and structuring complex products based on, the ‘plain vanilla’ CDS.
In Credit Default Swaps: The Vanilla Essence, Indra Rajaratnam provides an invaluable guide to the multifaceted risk considerations that stem from the structural features of a CDS (based on the 2014 Isda Credit Derivatives Definitions).
This book should appeal to CDS specialists within investment banking, risk management, asset management, product research and professionals in the hedge fund and insurance sectors. Similarly, regulators, lawyers, academics and students can benefit from the author’s chapter-by-chapter in-depth coverage of major CDS themes (including redenomination, orphaning and sanctions), clarification of key technical concepts and evaluative discussion topics.
Additionally, readers can learn from case studies and over 70 illustrations that have been incorporated to simplify product rules, along with Isda Determination Committee decisions over the 2009–22 period, giving readers a flavour of interpretation themes. The author also analyses basis risk considerations where both the 2014 and 2003 Isda Credit Derivatives Definitions are relevant, and, for a more holistic view of risk management, common structured product amendments and index provisions are covered.
Throughout, Rajaratnam highlights the importance of aligning risk management considerations with product behaviour. As the author emphasises, any time spent understanding the nuances of a CDS is always beneficial. By developing a better understanding of CDS risks, effective risk mitigation becomes easier.
About the Author
Foreword - Stephen Bartlett, EMEA Regional General Counsel, Citigroup
PART I OVERVIEW
1 A credit default swap snapshot
2 Parties and key players
3 Documentation and standard trading conventions
PART II TECHNICAL CONCEPTS
4 Credit risk period, scheduled termination date and termination date
5 Fixed amounts, floating rate payer calculation amount and initial payment amount
6 Qualifying guarantee and qualifying affiliate guarantee
7 Reference obligation
8 Subordination and the senior non-preferred supplement
9 Outstanding principal balance and due and payable amount
10 Obligations and deliverable obligations
PART III CREDIT EVENTS AND SUCCESSIONS
11 Credit event overview
13 Failure to pay
15 Restructuring and redenomination
16 Governmental intervention and contingent convertible capital instruments
17 Successor determinations
PART IV EVIDENTIARY MATTERS AND CONVENTIONS
18 Publicly available information and eligible information
20 Business day terms and timing rules
PART V SETTLEMENT
21 Event determination date and settlement methods
22 Auction settlement
23 Cash settlement
24 Physical settlement
25 Physical settlement fallback procedures
PART VI DISCUSSION TOPICS
27 Fixed recovery transaction and reference obligation only trade
28 Novation and early termination
29 Economic sanctions: compliance challenges
30 Disclosures and regulations
31 Conclusion: at the “Exit Checkpoint”