The Credit Default Swap Basis

The growth of the credit derivatives market has meant that credit default swaps (CDSs) have been playing a big part in the credit market situation. An understanding of how these instruments work and what they can, and cannot, offer is vital to knowing how to best use them.

This book investigates the close relationship between the synthetic and cash markets in credit, which manifests in the credit default swap basis. Choudhry covers:

• factors that drive the basis
• implications for market participants
• the CDS index basis
• trading the basis

Credit market investors and traders as well as anyone with an interest in the global debt markets will find The Credit Default Swap Basis insightful and rewarding.

Foreword.

Preface.

About the Author.

1 A Primer on Credit Default Swaps.

2 Bond Spreads and Relative Value.

3 The CDS Basis I: The Relationship Between Cash and Synthetic Credit Markets.

4 Supply and Demand and the Credit Default Swap Basis.

5 The CDS Basis II: Further Analysis of the Cash and Synthetic Credit Market Differential.

6 Trading the CDS Basis: Illustrating Positive and Negative Basis Arbitrage Trades.

Appendix I Description of Bloomberg Screen CDSW.

Appendix II The Market Approach to CDS Pricing.

Appendix III Market-Implied Timing of Default from CDS Prices.

Glossary.

Index.

CFA Institute Professional Development Qualified Activity (7 hours).

DR. MOORAD CHOUDHRY is head of Treasury at KBC Financial Products in London. He is a visiting professor at the Department of Economics, London Metropolitan University, a visiting research fellow at the ICMA Centre, University of Reading; a senior fellow at the Centre for Mathematical Trading and Finance, Cass Business School; and a fellow of the Securities and Investment Institute. Choudhry is the author of numerous books, including Fixed-Income Securities and Derivatives Handbook.

THE CREDIT LINE DEFAULT SWAP BASIS

"As credit default swaps become ever more important as a bank risk management tool, so market participants will need to understand the credit market cash-synthetic basis. This is an excellent treatment of the subject that provides valuable detail for investors and traders alike." —Mohamoud Barre Dualeh, Service Officer, Abu Dhabi Commercial Bank

The credit default swap basis (the basis) defines the relationship between the cash and synthetic credit markets. Finance professionals need to understand the drivers of the basis in order to better undertake investment and relative value analysis.

In this book Moorad Choudhry, a market practitioner who has published widely in the field of credit derivatives, explores the three most important aspects of the basis: why synthetic and cash prices differ, how to measure the basis, and how to trade the basis.

The Credit Default Swap Basis offers invaluable market insight to all professionals seeking a deeper understanding of credit derivatives and fixed income securities.

"An excellent account…sure to be of inestimable value to market practitioners." —Mark Burgess, Synthetic ABCP Operations, KBC Financial Products

"A timely and well-researched book on a key aspect of the credit derivatives market. Investors will gain much valuable insight from Moorad Choudhry's landmark text on the credit default swap basis, its drivers, and its behavior." —Suleman Baig, Structure, Deutsche Bank Global Markets

The growth of the credit derivatives market has produced a liquid market in credit default swaps across the credit curve, and this liquidity has led many investors to access both the credit derivative and cash bond markets to meet their investment requirements.

This book investigates the close relationship between the synthetic and cash markets in credit, which manifests itself in the credit default swap basis. Choudhry covers:

• Factors that Drive the Basis
• Implications for Market Participants
• The CDS Index Basis
• Trading the Basis

Credit market investors and traders as well as anyone with an interest in the global debt markets will find The Credit Default Swap Basis insightful and rewarding. "A timely and well-researched book on a key aspect of the credit derivatives market. Investors will gain much valuable insight from Moorad Choudhry's landmark text on the credit default swap basis, its drivers, and its behavior."
—Suleman Baig
Deutsche Bank Global Markets

"As credit default swaps become ever more important as a bank risk-management tool, so market participants will need to understand the credit market cash-synthetic basis. This is an excellent treatment of the subject that provides valuable detail for investors and traders alike."
—Mohamoud Barre Dualeh
Abu Dhabi Commercial Bank

"An excellent account and one sure to be of inestimable value to market practitioners."
—Mark Burgess
Synthetic ABCP Operations, KBC Financial Products