The Credit Default Swap Market Descriptive Essay This document contains instructions for project on the Credit Default Swap market. This assignment is due

The Credit Default Swap Market Descriptive Essay This document contains instructions for project on the Credit Default Swap market. This assignment is due on 4/30. Your paper should be 7-9 pages long and address your findings on all questions in the instruction. Your paper needs to be in essay format with transition sentences, not question-and-answer format. The file also provides grading rubrics (pasted below) and format guidelines. Be sure to read through.

Below are the grading rubrics:

A (90-100%) Outstanding. Clearly and accurately describes the main issue, and includes all key background information. There is abundance of evidence of critical, careful thought and analysis to support your ideas. Your response contains deep discussions. Organization is concise and very clear to the reader. Sentences are skillfully structured. Word choices are precise.

B (80-89%) Satisfactory. Accurately describes the main issue, and includes most of the key background information. There is some evidence of critical thought and analysis. Your idea is generally supported. Response contains some key information but lack of deep discussions. Organizational structure is with some ambiguities or irrelevances. Sentences are well structured. Word choices are appropriate.

C (70-79%) OK. Your description for the main issue may not be entirely accurate. Response includes some background information. There is limited evidence of critical thought and analysis. Your idea is somewhat supported though the support may be vague or too broad. Your answer overlooks some key information. Organization is filled with many ambiguities and irrelevances. Sentences lack structure. Words are vague or conversational.

D or F (70% and below) Unsatisfactory. Your response fails to describe the issue, and presents irrelevant information. Central idea and its support is absent. Evaluation does not present comprehension of the issue. A lack of organization profoundly interferes with the reader’s understanding. Response has confusing sentence structure and inappropriate word choices. The CDS market
The credit default swap (CDS) is a bilateral contract designed to transfer the credit risk of a
reference entity between the parties. The first credit default swap was introduced in the early
1990s to help banks hedge credit risk in connection with their lending activities. It was gradually
extended to cover sovereign debt, corporate debt, and MBS. In the early 2000s, the credit default
swap on a basket of reference entities (multi-name CDS, CDS index) was introduced into the
market. CDSs are mostly arranged and traded over the counter with big investment banks as
brokers.
You are asked to conduct research on the development of the CDS market, and answer the
following questions (200 points):
1. Describe the general framework of a typical CDS contract and the cash flows between
counterparties in the contract. (15 points)
2. What are the key differences between a CDS contract and a conventional insurance
contract? Are any of these differences contributing factors to the 2008 crisis? How? (25
points)
3. In CDS contracts, what kind of risks are CDS protection buyers exposed to? And what
kind of risks are CDS protection sellers exposed to? Describe three to four risks for each
party. (25 points)
4. The CDS market on corporate bonds is generally more liquid than the market of the same
name bonds (i.e., the CDS market on bonds issued by GM is more liquid than the market
for GM bonds). Why? Provide at least four reasons. (40 points)
5. What is CDS basis trade? Describe how it works. Explain under what conditions it is a
profitable trading strategy. What went wrong with negative CDS basis trades in late
2008? (40 points)
6. How did CDS trades increase the interconnectedness of financial institutions? (15 points)
7. What’s the role AIG play in the CDS trades? What’s your opinion on whether AIG
should be bailed out in 2008? Why? (40 points)
I.
Grading Designations
A (90-100%) Outstanding. Clearly and accurately describes the main issue, and includes all
key background information. There is abundance of evidence of critical, careful thought and
analysis to support your ideas. Your response contains deep discussions. Organization is concise
and very clear to the reader. Sentences are skillfully structured. Word choices are precise.
B (80-89%) Satisfactory. Accurately describes the main issue, and includes most of the key
background information. There is some evidence of critical thought and analysis. Your idea is
generally supported. Response contains some key information but lack of deep discussions.
Organizational structure is with some ambiguities or irrelevances. Sentences are well
structured. Word choices are appropriate.
C (70-79%) OK. Your description for the main issue may not be entirely accurate. Response
includes some background information. There is limited evidence of critical thought and
analysis. Your idea is somewhat supported though the support may be vague or too broad. Your
answer overlooks some key information. Organization is filled with many ambiguities and
irrelevances. Sentences lack structure. Words are vague or conversational.
D and below (lower than 70%) Unsatisfactory. Your response fails to describe the issue, and
presents irrelevant information. Central idea and its support is absent. Evaluation does not
present comprehension of the issue. A lack of organization profoundly interferes with the
reader’s understanding. Response has confusing sentence structure and inappropriate word
choices.
II.
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Format guidelines for the Paper
7-9 pages of text (with additional 3-4 pages of exhibits and references if necessary)
No more than 3,500 words
11 point font & Times New Roman
1-inch margins on all sides
Double line spacing
Complete bibliography with footnotes (single-spaced) for specific references; no endnotes
No spelling errors
No grammatical errors
No plural/possessive errors
No contractions
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No Plagiarism; use quotes when referencing a source’s exact words; here is a link to the
UNH Dimond Library resources regarding proper citations:
http://www.library.unh.edu/research-support/citation-styles. I strongly recommend you go to
the following link for the tutorial on plagiarism and make sure you fully understand the
definition of plagiarism: http://Cola.unh.edu/plagiarism-tutorial-0;
Occurrence of plagiarism will result in an F for this course.

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