Eurex, the international derivatives exchange, today announced that it will use a new Bloomberg model to calculate the final settlement prices of its new credit index future, which will be launched on 27 March. These prices will be displayed and can be analyzed on the BLOOMBERG PROFESSIONALÂ® service. The support of this new product category by industry leaders Eurex and Bloomberg will open new opportunities in a growing asset class.
Bloomberg, the leading global provider of analytics, news and data to the financial industry, is the leading analytical system in the credit derivatives realm and 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 Bloombergâs team of quantitative analysts and enables highly precise price determination for CDS and similar instruments. It can be selected on CDSW, the single name and index pricing tool, under Models, and is the pricing engine behind the new function FCDS (available as of 27 March).
Peter Reitz, member of the Executive Board of Eurex, said: âIncorporating 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 Bloombergâs distribution to a worldwide customer base.â
The planned credit derivatives will be a future based on the iTraxxÂ® Europe 5 year index series. The iTraxxÂ® Europe index is an equally weighted portfolio of the 125 most liquid European investment grade credit default swap (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 been growing exponentially over the last ten years, increasing 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.