[Credit event auctions] Systemically biased results – Part 2
Credit event auctions determine the amount paid out by credit default swaps when the company or sovereign referenced by the swap defaults. As such, the auction process is a vitally important part of the CDS market.
[Credit event auctions] Systemically biased results – Part 1
A week has passed since the auction for Greek CDS. Perhaps it’s now time to reflect on the credit event process. Toward that end we wanted to share our thoughts in a combined derivatiViews and media.comment post,
[Credit event auctions] Greece CDS payout cheatsheet
On Monday, we’ll finally know what amounts will be paid out to those who bought credit default swap protection on Greece, following last week’s credit event.
Which means it really is worth knowing how the payouts will be derived.
[Credit event auctions] Mechanics
Since 2009 credit event auctions that determine credit default swap payouts have been hardwired into the operations of the market. Previously, auctions were arranged on a more ad hoc, voluntary basis.
[Credit event auctions] A necessary condition for growth
Credit event auctions determine what the ultimate payout is when credit default swap contracts are triggered by a “credit event” such as bankruptcy.
In a previous post, FT Alphaville explained why such auctions came to exist.
[Credit event auctions] Why do they exist?
Credit event auctions are the means by which final payouts on credit default swap contracts are calculated. The importance of such auctions will increase as more and more defaults occur in the face of a global economic slowdown.