Articles

Hedging Implications of Fixed Coupon CDS

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It has been reported in several industry publications (e.g. CreditFlux, Reuters, derivatives Week Online) that the CDS market is likely to switch to a fixed coupon basis with upfront points. This change will lead to some fundamental changes in the risk profiles of these contracts. Understanding the implications of a switch to upfront contracts is going to be important in adjusting hedging strategies going forward. This is particularly true for strategies involving these contracts as hedges for default risk. This Learning Curve article will explore some of the most basic changes that participants in the credit markets will need to keep in mind.

 Understanding the implications of a switch to upfront contracts is going to be important in adjusting hedging strategies going forward. This is particularly true for strategies involving these contracts as hedges for default risk. This  Learning Curve was written by Mark Ferguson, Research Director, Anuj Gupta, Quantitative Analyst, and Rohan Douglas, CEO, all of Quantifi, Inc.

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