Credit default swaps at risk: Wrong pricing could lead to significant losses.
The article explores how credit default swaps are valued using system credit events. It finds that a complete set of credit events can be used to determine the value of these swaps. The default risk of the buyer must be considered to avoid incorrect pricing. The replacement cost of the swap deal also impacts its value. Additionally, small differences in the credit value of the underlying assets can lead to significant changes in the swap price.