Credit Default Swaps: Past, Present, and Future

Abstract

Credit default swaps (CDS) have grown to be a multi-trillion-dollar, globally important market. The academic literature on CDS has developed in parallel with the market practices, public debates, and regulatory initiatives in this market. We selectively review the extant literature, identify remaining gaps, and suggest directions for future research. We present a narrative including the following four aspects. First, we discuss the benefits and costs of CDS, emphasizing the need for more research in order to better understand the welfare implications. Second, we provide an overview of the postcrisis market structure and the new regulatory framework for CDS. Third, we place CDS in the intersection of law and finance, focusing on agency conflicts and financial intermediation. Last, we examine the role of CDS in international finance, especially during and after the recent sovereign credit crises. 10.1

Impact of emerging technologies in banking and finance in Europe: A volatility spillover and contagion approach1

“…As Credit default swap (CDS), the ITRAXX Europe index 4 was selected as independent variable to expose the model against economic performance [3,4,7]. Information was obtained from Bloomberg.…”

“…Autoregressive conditional heteroskedastic (ARCH) introduced by Engel [33] has become a useful model to explain the behavior of asset return volatility over time, where the conditional variance can be represented as: of companies engaged in the Cyber security segment of the technology and industrial sectors (https://www.bloomberg.com/quote/CIBR:US). 4 The ITRAXX Europe index that contains 125 equally weighted European names selected by a dealer poll based on CDS volume traded over the previous six months. (https://ihsmarkit.com/products/markit-itraxx.html)…”

The relationship between announcements of complete mergers and acquisitions and acquirers' abnormal CDS spread changes

“…modified restructuring clause (MM) with denomination in EUR (Andres et al, 2016;Augustin et al, 2016;Jansen and Fabozzi, 2017).…”

The Relationship Between Credit Default Swap, Economic Growth and Current Account Deficit: A Case of Turkey

“…In this regard, for monitoring financial risks, CDS premiums have become an alternative tool in the market (Mora, 2006:9, Flannery et al, 2010: 2095Başarır and Keten, 2016). After CDS's introduction to the financial world by JP Morgan in 1994 (Augustin et al, 2016), it has been recognized as a useful tool to differentiate the default risk of bond issuer party from other risks and to the price of the current credit risk (Whetten, et al, 2004). Sovereign CDS functions as a credit insurance policy issued against a debt (e.g.…”