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Credit Risk Derivatives and Competition in the Loan Market: (Simplified Version)

by Philipp J. Schönbucher of Bonn University, and
Erik Schlögl of the University of Technology, Sydney

February 8, 1999

Introduction: Recently new securities known as credit derivatives have been issued in international security markets, and amongst practitioners in the corporate loan and credit markets it is expected that the introduction of these securities will lead to a marked increase in the competition in the loan markets. The aim of this paper is to show that the introduction of such new security can indeed increase competition on the loan market, and we aim to show the mechanism by which this is achieved.

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