Credit Default Swaps

The rapid growth of credit derivatives has §revolutionized the trading and management of credit §risk. The goal of this diploma thesis is to outline §the products and market participants of the credit §derivatives market in the first step. The focus of §this thesis will be the financial derivative credit §default swap (CDS). A detailed explanation of credit §default swaps is given in the book starting with the §product definition and the structure of this §financial derivative. Further on, the mechanics of §the premium and the protection leg will be §discussed. With this knowledge, the thesis §introduces two different types of valuation models §for credit default swaps. In the first step the CDS §is valued analytically and then the Market Pricing §Approach is shown as a second valuation method. In §the fourth chapter of the book the implementation of §credit default swaps is presented. Various examples §and especially the use of CDS on mortgage securities §will be discussed. This thesis gives background §information about the current financial crisis and §is useful for university students and everybody who §is interested in financial derivatives markets and §instruments.