Credit Default Swaps and their Role in the Financial Crisis

Term Paper , 2011 , 12 Pages , Grade: A

Economics - Finance

A credit default swap is essentially an insurance contract to hedge credit risk. It is a type of derivative whose value depends on the likelihood of a company defaulting. In this type of derivative two parties enter a contract where one party agrees to pay another in the event of a company defaulting on bond payments (also known as a credit event) for a premium or spread.
CDS played a pivotal role in the recent financial crisis. It is also due to CDS that the crisis in the US housing market grew to a danger for the global capital markets. They were mainly responsible for the fall of insurance giant AIG and other turmoil over the course of the financial crisis. In this paper the nature and history of CDS is examinzed and their role in the financial crisis analyzed.

Table of Content

1. What are Credit Default Swaps?

2. History

3. CDS in the Financial Crisis

4. Developments after the Financial Crisis

5. References

• College: Union Graduate College
• Course: Money, Markets and Banking
• Grade: A
• Author: Klaus Schütz (Author)
• Publication Year: 2011
• Pages: 12
• Catalog Number: V198665
• ISBN (eBook): 9783656253976
• ISBN (Book): 9783656255123
• Language: English
• Tags: CDS, Credit Default Swaps, Derivatives, Financial Crisis, Capital Markets