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Equity v credit derivatives showdown: Difference between revisions
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Part of the lack of popularity is the sheer complication of the {{cddefs}}. Unlike the {{eqdefs}}, the 2003 Credit Derivatives Definitions really didn’t work, the move away was propelled by regulator angst and infrastructural imperative, so there was not the option of flat-out ignoring them, as the market did to the ill-fated [[2011 Equity Derivatives Definitions]]. | Part of the lack of popularity is the sheer complication of the {{cddefs}}. Unlike the {{eqdefs}}, the 2003 Credit Derivatives Definitions really didn’t work, the move away was propelled by regulator angst and infrastructural imperative, so there was not the option of flat-out ignoring them, as the market did to the ill-fated [[2011 Equity Derivatives Definitions]]. | ||
==Synthetic investment versus loss insurance== | ==Synthetic investment versus loss insurance== | ||
{{Eqderiv}} are means of gaining exposure — positive or negative— to an instrument without owning it. The basic point of the contract is to replicate exactly the economic features of the underlier, minus the physical, reporting and funding aspects of being on the register. You buy or sell an {{eqderiv}} ''instead of'' buying or selling the underlier. | {{Eqderiv}} are means of gaining exposure — positive or negative— to an instrument without owning it. The basic point of the contract is to replicate exactly the economic features of the [[Underlying|underlier]], minus the physical, reporting and funding aspects of being on the register. You buy or sell an {{eqderiv}} ''instead of'' buying or selling the [[Underlying|underlier]]. | ||
{{Cderiv}} assume you already own the [[Underlying|underlier]], but want to hedge away a specific embedded tail risk: namely, that it blows up. While you needn’t own the underlier to buy or sell {{Cderiv}} — the Robin Potts opinion is at great pains to stress that a [[Credit derivative|CDS]] is not a contract of insurance — generally speaking you ''will''. | |||