Of particular concern to these observers are that credit default swaps trade in the largely unregulated overthecounter market as bilateral contracts involving counterparty risk and that they facilitate speculation involving negative views of a firms financial strength. They are as easy to understand as insurance contracts. The pricing and risk management of credit default swaps. This paper examines the role that credit default swaps cds played in the runup to and during the financial crisis that struck in 20072008. Past, present, and future patrick augustin,1 marti g. A credit default swap cds is a form of insurance against the default of a debt issuing entity. A credit default swap is a financial derivative that guarantees against bond risk. Credit default swaps and the credit crisis by rene m.
Credit default swaps and the credit crisis nber working. Of particular concern to these observers are that credit default swaps trade in the largely. Credit default swaps and the financial crisis academic. Many observers have argued that credit default swaps contributed significantly to the credit crisis. A look at credit default swaps and their impact on the. A credit default swap is a particular type of swap designed to transfer the credit exposure of fixed income products between two or more parties.