Applications of Credit Derivatives

To diversify their credit ponfolios. Banks may wish to take on 

For instance, bank loans are often deemed unattractive as investments because of the administration that managing and servicing a loan portfolio requires. Investors can acquire exposure to bank loans returns while avoiding the administrative costs through, say, a total return swap. The same transaction allows banks to distribute their loan credit risk. 

To diversify their credit portfolios. Banks may wish to take on additional credit exposure by selling credit protection on assets they own to other banks or investors, thus enhancing their portfolio tetutns. They may sell derivatives to non-bank clients who don t want to buy the associated assets directly but do want exposute to the ctedit tisk of the assets. In such a transaction, the bank acts as a credit intermediary. 

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Part Two, Cash and Derivative Instruments and Analysis, has an analysis of various instruments including callable bonds that feature embedded options. There is a discussion of securitization and the impact on the market of the financial crisis. Other chapters cover U.S. Treasury TIPS securities, and the use and applications of credit derivatives. 

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