HIGHLIGHTS
■ Credit derivatives ate revolutionising the trading of credit risk.
■ The credit derivative market current outstanding notional is now close to SI trillion.
■ Credit default snaps dominate me market and are the building block for most credit derivative structures
■ While banks are the major users of credit derivatives, insurers and re-insurers are growing in importance as users of credit derivatives.
■ The main focus of mis report is on explaining the mechanics, risks and uses of the different types of credit derivative
■ We set out die various bank capital treatments for credit derivatives and discuss the New Basel Capital Accord.
■ We review the legal documentation for credit derivatives.
■ We discuss the effect of FAS 133 and IAS 39 on credit derivatives.