Who can trade credit default swaps
Jimmy declares bankruptcy, and the chain reaction continues ad infinitum. Now imagine this scenario played out on a global scale, with the health of multinational banks and corporations -- and the portfolios of untold individuals -- at stake. Welcome to the credit default swaps market. The credit default swap (CDS) market is often regarded as one of the most influential financial market innovations to occur in the past 20 years. 4 Despite its size, 5 importance, and development, very little public information is available about how financial institutions use CDSs as investments or credit risk hedges. To better understand how derivatives are used requires, at a minimum, knowledge of the specific derivative transactions the institution undertakes as well as the institution's