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

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

1 Scopus Citations

Abstract

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
Volume33
Issue number3
Early online date8 Oct 2013
DOIs
Publication statusPublished - Oct 2013
Externally publishedYes

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weapon of mass destruction
weapon
credit
Insurance
debt
insurance
indebtedness
Profitability
Derivatives
financial crisis
reputation
investor
supervision
profit
hedge
Costs
costs
contract

Keywords

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

Cite this

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Credit default swaps : risk hedge or financial weapon of mass destruction? / SHARMA, Shalendra.

In: Economic Affairs, Vol. 33, No. 3, 10.2013, p. 303-311.

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

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