Credit default swaps : risk hedge or financial weapon of mass destruction?

Research output: Journal PublicationsJournal Article (refereed)peer-review

2 Citations (Scopus)


Credit default swaps (CDSs) are contracts between buyers and sellers of protection against default. They are a form of debt insurance, or more precisely derivatives contracts that investors buy to either insure against or profit from a default. In this way CDS contracts act as a form of debt insurance in that they provide a means of protection against credit risk. In the aftermath of the global financial crisis, the CDS earned the reputation of a ‘financial weapon of mass destruction’. Why? Is this charge justified? This paper shows that the reality is more complex: CDSs carry benefit as well as costs, and the risks associated with them can be mitigated through prudent supervision.
Original languageEnglish
Pages (from-to)303-311
Number of pages9
JournalEconomic Affairs
Issue number3
Early online date8 Oct 2013
Publication statusPublished - Oct 2013
Externally publishedYes


  • credit default swaps
  • debt insurance
  • derivatives
  • JPMorgan Chase

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