Basics of Credit Derivatives

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Credit derivatives terminology

By Vinod Kothari

 

 

Curve trade: A credit derivatives trading strategy where a trader feels that the credit spreads along the credit curve are mispriced – the slope is either too much or too less. For example, a trader who feels that the long term spreads are likely to widen relative to the short term spreads might buy protection for the longer term, and sell protection for the shorter term, thereby gaining when the widening does happen. Since the strategy is based on steepening of curve, it is also called steepener trade. A Flattener trade is the opposite view.

 

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