Default Contagion and Systemic Risk in the Presence of Credit Default Swaps

2017 ◽  
Author(s):  
Katsumasa Nishide ◽  
Teruyoshi Suzuki ◽  
Kyoko Yagi
Keyword(s):  
Systemic Risk ◽  
Credit Default Swaps ◽  
Credit Default ◽  
Default Contagion

Credit default swaps and systemic risk

2015 ◽  
Vol 247 (2) ◽  
pp. 523-547 ◽  
Author(s):  
Rama Cont ◽  
Andreea Minca
Keyword(s):  
Systemic Risk ◽  
Credit Default Swaps ◽  
Credit Default

scholarly journals Are Credit Default Swaps Credit Default Insurances?

2014 ◽  
Vol 30 (6) ◽  
pp. 1819 ◽  
Author(s):  
Christian Schmaltz ◽  
Periklis Thivaios
Keyword(s):  
Systemic Risk ◽  
Insurance Industry ◽  
Credit Default Swaps ◽  
Economic Perspective ◽  
Insurance Contracts ◽  
Insurance Policies ◽  
Credit Default ◽  
Regulatory Perspective ◽  
Risk Potential

No, they are not. Although they exhibit similar cash flow patterns (economic perspective) this article argues that from a legal, accounting and regulatory perspective credit default swaps (CDS) are not considered to be an insurance contract. The protection buyer of a CDS is eligible to obtain the compensation without suffering any loss (and potentially realizing a gain) whereas insurance policies only pay out to compensate a loss (and not potentially realizing a gain). This disconnect between protection and exposure is the source for potential over-coverage. Furthermore, the concentrated set of reference entities and (interbank) counterparties as well as their tradeability make CDSs highly systemically significant products. Our conclusion is that CDSs are not default insurance policies. We propose to use default protection instead of credit default insurance to avoid the mislabelling. Furthermore, CDS have a substantial systemic risk potential which sharply contrasts to the limited systemic risk in the insurance industry. The legal classification of CDS as insurance contracts would have an enormous impact on the liquidity of CDS, as the ability of counterparties to issue and participate in CDS contracts would be limited.

scholarly journals Modeling basket credit default swaps with default contagion

2007 ◽  
Vol 3 (4) ◽  
pp. 31-67 ◽  
Author(s):  
Helen Haworth ◽  
Christoph Reisinger
Keyword(s):  
Credit Default Swaps ◽  
Credit Default ◽  
Default Contagion

scholarly journals Credit Default Swaps networks and systemic risk

2014 ◽  
Vol 4 (1) ◽  
Author(s):  
Michelangelo Puliga ◽  
Guido Caldarelli ◽  
Stefano Battiston
Keyword(s):  
Systemic Risk ◽  
Credit Default Swaps ◽  
Credit Default

Credit Derivatives as a Factor of Systemic Risk

2014 ◽  
Vol 2014 (5) ◽  
pp. 27-42
Author(s):  
Nikolay Rubtsov
Keyword(s):  
Systemic Risk ◽  
Credit Markets ◽  
Financial System ◽  
Credit Derivatives ◽  
Credit Default Swaps ◽  
Domino Effect ◽  
Credit Default ◽  
System States ◽  
The Impact

The article analyzes the functioning of credit derivatives (first of all credit default swaps, or CDS) as a factor of systemic risk. The article examines the impact of credit default swaps on the functioning of the entire modern financial system, states that one of the myths about credit derivatives lies in the fact that they supposedly reduce the risk. In fact, they only transfer risk from one person to another, willing to take the risk. The end result of this risks transformation is a close interdependence between all participants of credit markets and the huge concentration of risks in the hands of individual players, who in case of unforeseen situations face the inability to pay on their obligations. The result is a domino effect that leads to a crisis of the financial system. The 2008 events is a vivid example of such a situation.

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