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by nissimk
4816 days ago
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That's certainly true for interest rate swaps, but credit default swaps are actually quite similar to stocks. For example when Lehman filed and the stock went to 0, the CDS settled at 91.375 [1] meaning that the protection seller had to send 91.375% of the notional value to the protection buyer. Yes, in most cases there is no credit event and even in many credit events the impairment to the debt is much less than 90%, but also most stocks don't go to 0. This case is a good example because the maximum market cap of Lehman stock was 60 bln [2], but the CDS market moved 270 bln in the credit event (see [1]). [1] http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a... [2] http://www.investopedia.com/articles/economics/09/lehman-bro... |
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