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Credit Default Swaps: Past, Present, and Future

Patrick Augustin (), Marti G. Subrahmanyam (), Dragon Y. Tang () and Sarah Q. Wang ()
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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

Annual Review of Financial Economics, 2016, vol. 8, issue 1, 175-196

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.

Keywords: agency conflicts; asset pricing; CDS; credit risk; derivatives; market structure; sovereign debt (search for similar items in EconPapers)
JEL-codes: F34 G01 G1 G3 K22 (search for similar items in EconPapers)
Date: 2016
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