The price was right
With three of the biggest credit events in history - Fannie Mae, Freddie Mac and Lehman Brothers - occurring within a week of each other in September, the credit derivatives market faced its biggest-ever test. Auctions to establish cash settlement prices took place in October. How did the process go? By Duncan Wood
Credit derivatives have been getting a bad name ever since the crisis kicked off for real in August 2007. As a result, all eyes were on the market during the second week of October, when auctions were held to work out the recovery values for bonds issued by Fannie Mae, Freddie Mac and Lehman Brothers - and therefore the amount an estimated $850 billion in outstanding credit default swaps (CDSs) would pay out.
Speaking before the October 6 auction for the two mortgage giants, Athanassios Diplas
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