Credit Derivatives: The Latest New Thing
In a rapidly expanding derivatives market, today’s “latest thing” may soon be listed at trillions of dollars. It is the prospect of improved methods for managing an old risk that has piqued the interest of bankers. Derivatives dealers are similarly interested in the prospect of booking derivative contracts for bank loans recently valued at $2.7 trillion. The “old risk” is the risk of loan default and it is the size of the loan market that is motivating dealers to make sizable investments to develop the technology to manage this risk.