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bank of england credit derivatives


Bank of England credit derivatives research papers are widely quoted in academic research as well as in credit derivative market practice.

Credit derivatives are comparably new financial innovation used to distribute specific forms of credit risk through derivative instruments.

Because of these instruments, issuers can spread the risk in their current credit portfolio and assume other types of credit risk, thus diversifying overall exposure.

In fact, market in credit risk transfer are broadly seen to have the potential to contribute to a more efficient allocation of credit risk in the economy.

For one source, the British Bankers Association lists several types of credit risk derivatives, including

  • Single-name Credit Default Swaps
  • Credit Linked Notes
  • Credit Spread Options

Portfolios/Collateralised Debt Obligations (CDOs)

However, there is no universally-accepted definition for a credit risk derivative, and the innovation on this sector continually adds to diversity.

The market for credit risk derivatives has expanded considerably: Bank of England (BoE) estimated in 2001 the credit risk derivatives market to reach (the notional principal outstanding) at over US$1 trillion mark globally.

Bank of England Credit Derivatives Research

The paper on credit risk available from the Bank of England credit derivatives research is good reading for the background on the innovation and potential on the field.

The paper is available directly from the Bank of England in PDF format and is titled Financial Stability Review: June 2001.

Since the background paper on credit derivatives markets was published in 2001, BoE has continued the research into credit risk derivatives market.

Their newer papers include:

An Empirical Analysis of the Dynamic Relationship between Investment Grade Bonds and Credit Default Swaps by Simon Brennan (Bank of England), Roberto Blanco (Bank of Spain), and Ian W. Marsh (City University London)


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From bank of england credit derivatives page to Investments Guide index