Credit and Weather Derivatives

Credit and Weather Derivatives Liyan Dizon Marose Monedero Macky Villagarcia Feb 11, 2011

What are credit derivatives? ,[object Object],[object Object]

Growth in Credit Derivatives Source: British Bankers Association Credit Derivatives Report

Credit Derivatives Market Participants Source: British Bankers Association (BBA)

Types of Credit Derivatives ,[object Object],[object Object],[object Object]

1. Credit Default Swap ,[object Object],[object Object]

What is a credit event? ,[object Object],[object Object]

Example… ,[object Object],[object Object],[object Object],[object Object]

Exhibit ,[object Object],Bank A Buyer Insurance Company C Seller Steel company Reference Asset Contingent Payment On Credit Event Premium Fee Credit Risk

2. Credit Spread Option ,[object Object],[object Object]

Example… ,[object Object],[object Object]

3. Credit Linked Notes ,[object Object],[object Object],[object Object]

Example… Refer to the Steel company case again ,[object Object],[object Object],[object Object]

Exhibit Bank A Institutional investors Steel Company $1 Million fixed or floating coupon,if defaults or declares bankruptcy the investors receive an amount equal to the recovery rate $1million 500b p Steel Company

Sources ,[object Object],[object Object]

Credit and Weather Derivatives

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Credit and Weather Derivatives