Questions and Answers
Qual è la durata di un CDS con 4 pagamenti trimestrali di premio?
1 anno con 4 pagamenti trimestrali di premio
Quando può verificarsi l'insolvenza in un CDS?
Solo durante le date di pagamento del premio
Come viene calcolato l'importo del pagamento del premio trimestrale di un CDS?
Nc/4
Cosa influenza il prezzo di un CDS?
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Qual è l'effetto dei derivati, come i CDS, in caso di insolvenza?
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Quanto potrebbero perdere gli investitori che hanno venduto CDS se il valore di recupero è del 40%?
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Qual è stato il ruolo dei derivati nella crisi dei mutui subprime negli Stati Uniti?
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Qual è la causa della discrepanza di prezzo tra i CDS e i bond di debito sovrano sottostante?
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Come viene calcolato il rischio di credito in un CDS?
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Study Notes
- CDS pricing must consider the possibility of default between the start and end date.
- A CDS can have a duration of 1 year with 4 quarterly premium payments.
- Premium payment dates are at t1, t2, t3, and t4.
- The nominal value of a CDS is N and the premium is c.
- Quarterly premium payment amount is Nc/4.
- Insolvency can occur only on premium payment dates.
- The simplified assumption is made for the example.
- The example is used to explain the calculation of CDS pricing.
- CDS pricing considers the probability of default and the recovery rate.
- CDS pricing is affected by market conditions and credit ratings.
- Derivatives, such as credit default swaps, can amplify losses in case of insolvency.
- If only 40 cents per dollar are recovered, investors holding bonds could lose $600 million, while those who sold CDS could lose $6 billion.
- Derivatives played a central role in the subprime mortgage crisis in the US.
- Insurers, such as AIG, miscalculated the risk when issuing CDS, leading to the risk of bankruptcy.
- Anomalies in pricing can occur because CDS spreads are derived from asset swap pricing.
- The spread on a CDS contract is usually lower than the spread on the underlying sovereign debt bond.
- This creates a pricing anomaly that can lead to CDS contracts being traded at zero, which is not realistic.
- Investors who want to cash in on a CDS premium will receive a payment in exchange for assuming the credit risk.
- Credit risk is priced as a spread above banking risk.
- This pricing strategy can lead to unrealistic pricing for CDS contracts.
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