Why should I choose AnalystNotes?
Simply put: AnalystNotes offers the best value and the best product available to help you pass your exams.
Subject 2. Credit Events and Settlement Protocols PDF Download
The CDS pays off upon occurrence of a credit event. The selection of credit events is subject to negotiation, and should be defined clearly in the CDS terms.
There are three general types of credit events:
- Bankruptcy. The reference entity has filed for relief under bankruptcy law.
- Failure to pay. The reference entity fails to make interest or principal payments when due.
- Restructuring. The configuration of debt obligations is changed in such a way that the credit holder is unfavorably affected.
- Physical settlement. The reference asset is delivered to the protection seller in exchange for the face value of the paper in cash.
- Cash settlement. A cash payment made from the protection seller to the protection buyer is the difference between the market price and the face value of the debt.
- Recovery rate: the % of loss that is recovered.
- Payout ratio = 1 - Recovery rate (%)
- Payout amount = Payout ratio x Notional
User Contributed Comments 0
You need to log in first to add your comment.
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
My Own Flashcard
No flashcard found. Add a private flashcard for the subject.