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Credit Default Swaps: Past, Present, and Future

Author

Listed:
  • Patrick Augustin

    (Desautels Faculty of Management, McGill University, Montreal H3A 1G5, Canada)

  • Marti G. Subrahmanyam

    (Leonard N. Stern School of Business, New York University, New York, NY 10012)

  • Dragon Y. Tang

    (Faculty of Business and Economics, University of Hong Kong, Hong Kong)

  • Sarah Q. Wang

    (Warwick Business School, University of Warwick, Warwick CV4 7AL, United Kingdom)

Abstract

Credit default swaps (CDS) have grown to be a multi-trillion-dollar, globally important market. The academic literature on CDS has developed in parallel with the market practices, public debates, and regulatory initiatives in this market. We selectively review the extant literature, identify remaining gaps, and suggest directions for future research. We present a narrative including the following four aspects. First, we discuss the benefits and costs of CDS, emphasizing the need for more research in order to better understand the welfare implications. Second, we provide an overview of the postcrisis market structure and the new regulatory framework for CDS. Third, we place CDS in the intersection of law and finance, focusing on agency conflicts and financial intermediation. Last, we examine the role of CDS in international finance, especially during and after the recent sovereign credit crises.

Suggested Citation

  • Patrick Augustin & Marti G. Subrahmanyam & Dragon Y. Tang & Sarah Q. Wang, 2016. "Credit Default Swaps: Past, Present, and Future," Annual Review of Financial Economics, Annual Reviews, vol. 8(1), pages 175-196, October.
    • Handle: RePEc:anr:refeco:v:8:y:2016:p:175-196
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    File URL: http://www.annualreviews.org/doi/10.1146/annurev-financial-121415-032806
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    More about this item

    Keywords

    agency conflicts; asset pricing; CDS; credit risk; derivatives; market structure; sovereign debt;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises
    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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