A Primer on Credit Default Swaps

What is a CDS? How does a CDS behave in response to changes in the markets? How does one value a CDS? What is the risk? This primer aims to answer these questions for plain-vanilla single-name CDS, showing that a CDS is equivalent to a leveraged floating-rate corporate bond (a floating rate note or FRN).

This is an 11-page paper available as a .pdf, originally written October 2008, revised December 2009, available here on the CloseMountain site and also available at Social Science Research Network (SSRN).

About Thomas Coleman

Thomas S. Coleman is Senior Advisor at the Becker Friedman Institute for Research in Economics and Adjunct Professor of Finance at the Booth School of Business at the University of Chicago. Prior to returning to academia, Mr. Coleman worked in the finance industry for more than twenty years with considerable experience in trading, risk management, and quantitative modeling. Mr. Coleman earned a PhD in economics from the University of Chicago and a BA in physics from Harvard College.
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