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The credit derivatives market has been in operation for over 12 years offering investors and risk managers an array of products for achieving a broad range of financial objectives.  Once the domain of a handful of global banks, credit derivatives are now widely used with increasing involvement from institutional money and even retail.  The motivation for use remains compelling: risk managers need an efficient way of hedging large exposures and optimising portfolio returns, investors want to tailor investments to their own specific needs and traders continue to look for more efficient ways of trading credit risk.

 

The structured credit and credit derivatives markets are currently going through significant turmoil due a number of complicated factors including problems in the American “sub-prime” residential real estate market.  Large trading volumes are yet again challenging the market’s operational infrastructure; mark-to-market losses even for triple-A tranches of corporate CDOs are presenting some institutions with liquidity problems; funds have failed and more will fail; the credibility of the market is at stake.

 

As the events of the last year – the “Credit Crisis” - unravel many questions will be asked and some of them will echo the same questions that have been asked over the last decade: how do credit derivatives work, why do people use them, how does the market work, what can go wrong and what did go wrong in mid-2007. 

 

Reoch Consulting has been providing  advisory services to the credit markets since 2001. 

To contact us:

Phone: +44 1984 656663

Mobile: +44 7767 838383

E-mail: robert.reoch@reochconsulting.com