Finance - Investments Swaps?
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Please can someone guide me where to get information on charcterists of Single Name Swaps and Basket Swaps. ( This is in reference to the Debt only, ex CDS)
If you know the answers please reply. I have tried several Websites but could not find an answers anywhere.
I have to sort out Single Name and Basket swaps from a set of data and then probably find out the rule that how system can do this job in its own in future so I have to build a good knowlidge on this subject.
Regards
Gaurav
Answers:
Dear Gaurav:
Is this what you're looking for?
Overview
A basket default swap is similar to a single entity default swap except that the underlying is a basket of entities rather than one single entity. There are several types of basket default swaps. The popular ones are first-to-default, nth-to-default, n-out-of-m-to-default and all-to-default swaps. With a single entity, a credit event is usually a default of the entity (see FINCAD math reference Credit Default Swaps for details). With a first-to-default swap, a credit event occurs the first time any of the entities defaults. Such a swap will provide default protection against losses related to this first default. A similar definition holds for an nth-to-default swap. An n-out-of-m-to-default swap protects the buyer against losses related to the first n defaults of the m-entity basket. Similarly, an all-to-default swap protects against losses resulting from credit events of any of the entities in the basket.
For a first-to-default default swap, whenever an entity in the reference basket defaults, the buyer stops paying the swap’s premium and receives from the seller the difference of the principal amount of the defaulted entity and the recovered value. If the swap’s counterparty defaults, premium payments will stop and both the buyer and the seller walk away from the contract. For an nth-to-default swap whenever the nth default occurs in the reference basket, the buyer stops paying the premium and receives the difference of the principal amount of the latest (nth) defaulted entity and the recovered value. Note that the premium does not stop until the nth default as long as the counterparty does not default, even if there are already defaults in the basket. For an n-out-of-m-to-default swap the seller pays the difference of the principal amount and the recovered value for each of the first n defaults and the buyer stops paying the premium after the nth default occurs. For an all-to-default swap the buyer continues paying the premium as long as there are undefaulted entities in the basket and the counterparty does not default, and receives from the seller any lost principal amount of the basket.
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