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credit derivatitive trading
- Thread starter trend2009
- Start date
I thought there was already a CDX IG index future (or was it iTraxx? I'm too lazed to look it up) at some point years back, but nobody cared.
The thing is, banks WANT more trading in this stuff; It's just that the whole credit crisis business really dampened the enthusiasm for it.
It's also really annoyingly complicated (there's more or less 1 IBM stock; there's like a billion different IBM bonds at all sorts of subordination levels and payout structures (bullets, floaters, etc)). And CDS layers on another level of abstraction/complexity... so I think it's hard to be popular in an exchange traded format.
(I used to trade this stuff; I'm so much happier than I don't anymore)
The thing is, banks WANT more trading in this stuff; It's just that the whole credit crisis business really dampened the enthusiasm for it.
It's also really annoyingly complicated (there's more or less 1 IBM stock; there's like a billion different IBM bonds at all sorts of subordination levels and payout structures (bullets, floaters, etc)). And CDS layers on another level of abstraction/complexity... so I think it's hard to be popular in an exchange traded format.
(I used to trade this stuff; I'm so much happier than I don't anymore)
Quote from bs2167:
Are they any closer to getting some of this stuff exchange listed? Or were the banks successful in stifling that conversation entirely?
Quote from CT10Gov:
It's also really annoyingly complicated (there's more or less 1 IBM stock; there's like a billion different IBM bonds at all sorts of subordination levels and payout structures (bullets, floaters, etc)). And CDS layers on another level of abstraction/complexity... so I think it's hard to be popular in an exchange traded format.
Well, I guess one could argue that CDS simplifies things a bit since you're talking about CTD rather than myriad structures. However, I think the abscence of a liquid recovery lock market is probably the biggest impedance to an explosion in volume. If that were in place, you'd have all sorts of equity derivs players get involved looking at plays between skew / implied vols and hazard rates. It might even breath a little life back into structured credit.
Yeah... it's supposed to... except when it doesn't - and with credit, that's usually when really need things to be simple (credit event). Back in 2006/7 it looked like a recovery lock market was right around the corner, but no such luck.
People have been trying to do CDS/equity type of trades for as long as I can remember.... I always figured it's not really *that* popular because of the difficulty of creating relationship between cds and equity that's very leaky.
People have been trying to do CDS/equity type of trades for as long as I can remember.... I always figured it's not really *that* popular because of the difficulty of creating relationship between cds and equity that's very leaky.
Quote from bs2167:
Well, I guess one could argue that CDS simplifies things a bit since you're talking about CTD rather than myriad structures. However, I think the abscence of a liquid recovery lock market is probably the biggest impedance to an explosion in volume. If that were in place, you'd have all sorts of equity derivs players get involved looking at plays between skew / implied vols and hazard rates. It might even breath a little life back into structured credit.
Quote from CT10Gov:
Yeah... it's supposed to... except when it doesn't - and with credit, that's usually when really need things to be simple (credit event). Back in 2006/7 it looked like a recovery lock market was right around the corner, but no such luck.
People have been trying to do CDS/equity type of trades for as long as I can remember.... I always figured it's not really *that* popular because of the difficulty of creating relationship between cds and equity that's very leaky.
I thought that a lot of credit guys did trade equity vol against credit - normally comparing deep downside (bankruptcy) to cds spreads.
I've seen a lot of people try to use credit as a predictor for equities instead of trading spreads between the two, but i think the false postives are too many.
I've seen those trades. I don't know about 'a lot', but I wasn't doing cash equity... so you might have seen more.
The spreads are not easy to trade for IG, since there are so many other factors. Think the distressed guys were more heavily involved.
The spreads are not easy to trade for IG, since there are so many other factors. Think the distressed guys were more heavily involved.
Quote from newwurldmn:
I thought that a lot of credit guys did trade equity vol against credit - normally comparing deep downside (bankruptcy) to cds spreads.
I've seen a lot of people try to use credit as a predictor for equities instead of trading spreads between the two, but i think the false postives are too many.
the market should open up for retail/smaller institutional traders as more of it goes electronic/exchange traded and cleared. in the meantime there's no getting around needing an ISDA agreement, dealing w/ counterparties who will dick you around on price (like michael burry as chronicled in the big short by michael lewis) and they fact that someone (or a group of someones) may just decide that a credit event is not in fact a credit event and decide to turn your swaps into wallpaper (like greece)
the cme has done some work promoting doom (deep otm options) as an alternative to cds
of course if you're talking about another aspect of credit derivs than disregard the above
the cme has done some work promoting doom (deep otm options) as an alternative to cds
of course if you're talking about another aspect of credit derivs than disregard the above