<t>Hi,Risk Magazine (Nov 2006) had an article dealing with deal contingency in M&A transactions: in other words, potential acquirers can pre-hedge the currency or interest rate risk in the financing component of a deal with a structure that terminates if the M&A transaction falls through.Dea...

<t>Pension funds and insurance companies often have liabilities linked to inflation, hence it makes a lot of sense to receive inflation under an inflation linked swap or bond. However, literature mentions state owned monopolies with revenue directly linked to inflation, e.g. gas, water, electricity ...

<t>Farmer, thanks for your response. Is the solution you propose not highly theoretical, requiring all kinds of correlation driven trades, which in practice are difficult to excecute? There would probability be a lack of reliable data, or obtaining approval to hedge the structure this way might be d...

<t>Let's assume the 5-years CDS market for a certain credit trades 35-40. I would like to hedge the credit exposure (i.e. positive mark-to-market) on a 5 year, € 100 million IRS transaction on this counterparty by using a CDS. Let's assume the counterparty is paying fixed and receiving floating unde...

Thanks for this information. Do you also have information on credit contingent interest rate swaps? Google did not deliver a usuable result.

<t>The credit risk on an IRS transactions is losing the positive mark-to-market value in case the IRS counterparty defaults. In addition to a widening of the credit curve or instantaneous default, credit risk is also driven by a change in interest rates, which effectively determine the change in mar...

<t>Hi Ri,I agree that increasing the CDS' tenor will increase its basis point value (bpv). However, on a 10Y tenor the bpv of a € 5m notional value CDS is much lower than a € 100m notional value IRS. The former is approx. € 4,000, and the latter € 81,000. Increasing the tenor of the CDS will not be ...

<t>Arvanitis and Gregory (2001, Credit: The Complete Guide to Pricing, Hedging and Risk Management) suggest a method to hedge the counterparty risk on an IRS by a CDS. In short this method consists of hedging the IRS' mark-to-market value by buying a CDS with a notional equal to this m-t-m. Obviousl...

<r>Hi,According to Ernst & Young LLP (2003) "many banks have considerable exposure to a large number of unrated small and medium-sized enterprises (SME’s). Instead of tracking each individually, an index of creditworthiness may be created based upon a diverse portfolio of SME’s. Credit protectio...

<t>Who can comment on this topic? Are there banks that securitise credit exposures on interest rate derivatives portfolios, or is it very uncommon? With a traditional securitisation there are assets (e.g. credit card receivables, loans and interest payments) to be securitised which generate a cash f...

<t>Hi,I would like to know whether a CDS is suitable to hedge the (dynamic) credit exposure on an interest rate swap. Which exposure (e.g. expected, worst-case) needs to be taken? The idea is to incorporate the CDS costs into the IRS quote, meaning that these costs need to be known in advance. I gue...

<t>Hi,I would like to know whether a CDS is suitable to hedge the (dynamic) credit exposure on an interest rate swap. Which exposure (e.g. expected, worst-case) needs to be taken? The idea is to incorporate the CDS costs into the IRS quote, meaning that these costs need to be known in advance. I gue...

<t>Hello,I'm looking for information on hedging dynamic credit exposure on interest rate swaps and cross ccy interest rate swaps by a credit default swap. Hull & White mention the Dynamic CDS in their paper "Valuing Credit Default Swaps I: No Counterparty Default Risk" (April 2002): Text, but th...

<t>To my knowledge there are 4 stubs in e.g. an interest rate swap, interest rate cap, or swaption transaction, which are:-Short first stub: the first interest period of e.g. a swap is shorter than the following interest periods, e.g. a swap that starts at (mm/dd/yy) 04/01/04 and ends at 01/01/07. T...

<t>I'm currently examining ways to manage the credit exposure on an interest rate swap and cross currency interest rate swap by using credit default swaps. The exposures are related to IRS and CCIRS transactions with corporates (so not banks and other counterparties with whom there is usually some s...