I want to know about the Derivatives pricing. Credit default is one of the derivatives in Swaps. I want to know as to how is the pricing done during the start of the trade. Also in case if the CDS swap buyer wants to get out of the trade and sell it how is the pricing done. Can you please help me out also if possible with an simple example.
Kalpesh from India
Kalpesh! credit default swap is big market like any stock exchange. There are large number of buyers and sellers. On the basis of demand and supply derivative price is fixed. For example, I want to sell me loan of $ 10 million at $ 8 million due to its risk to be default. Now, it is not sure, it will be sold at $ 8 million. It will be affected with demand. Who want to buy. If there are lots of buyer. Then, a bid system will apply. A buyer who will give high bid for this, will get loan. At that time, seller will get profitable deal. Some time, multi-bid system may be apply for fixing the derivative price.
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