Eurex, the international derivatives exchange, yesterday announced it will use a new Bloomberg model to calculate the final settlement prices of its new credit index future, to be launched on 27 March. These prices will be displayed and can be analysed on the Bloomberg Professional service.
Bloomberg, a global provider of analytics, news and data to the financial industry, launched its own proprietary calculation model for single-name credit default swaps (CDS) and CDS indices and options in January 2007. The model has been developed by Bloomberg’s team of quantitative analysts and enables highly precise price determination for CDS and similar instruments.
“Incorporating the Bloomberg CDS pricing model in our calculation of settlement prices will increase the transparency of our product. At the same time we will benefit from Bloomberg’s distribution to a worldwide customer base,” says Peter Reitz, member of the executive board of Eurex.
The planned credit derivatives will be a future based on the iTraxx Europe 5 year index series, an equally weighted portfolio of the 125 most liquid European investment grade CDS entities. Credit derivatives offer market participants the opportunity to hedge against credit events such as corporate defaults, failure to pay or restructuring.
The global credit derivatives market has increased rapidly from approximately USD 1 trillion in 1996 to more than USD 20 trillion in 2006. Listing credit derivatives will improve operational efficiency and risk management for existing credit market participants, the firm says.