Credit Derivatives Innovation Path And Risk Control

Credit derivatives which can separate credit risk from other risk are an innovation in credit risk management. Using the methods of hedging and arbitrage, we can release the risks existed in basic assets, and transfer it to the financial market. Credit derivatives are also negative benefit assets, so it can completed the credit risk hedging positions by the transaction between sellers and buyers. Compared with many traditional credit risk transferring(CRT)methods,the credit derivatives are one of the most important financial innovations. The new Products improve traditional methods of managing credit risk,and aim at controlling credit risk,remedying limitation of credit markets. Using the credit derivatives,banks can control income and risk more flexibly,avoid risk centralization efficiently and diversify assets portfolios. Hence,more and more banks pay attention to credit derivatives. Meanwhile Credit derivatives also have some risks,and may have negative effects on financial stability. So we should consider the risk that credit derivatives have. Credit derivatives expand influences of credit risk,change the original risk disposition and also expand the financial security net to other institutions. Furthermore,credit derivatives may bring adverse choice and moral hazards. All the risk increase financial vulnerability.This article expatiates on the impetus and effects of credit derivatives innovation in the view of financial tool innovation. Firstly synoptically realize the credit derivatives, then analysis the innovation of credit derivatives, and point out the impetus of credit derivatives innovation. After analyzing the transaction modes of every credit derivative, find out the innovation path, and point out its risk transferring path. At last, refer to the innovation path above, analysis its risk and suggest the supervision require. Credit risk transfers alone with the innovation path, so the supervision requires more. Credit derivatives risk management should commence from the node and whole.