Collateralization: A safety net for investors?
The proliferation of credit derivatives has given rise to the widespread use of collateralization—posting collateral against the risk of default. But as Saskia Scholtes reports, this practice may be creating its own risks.
Over the past several years, the derivatives markets have grown at a furious pace. According to market surveys conducted by the International Swaps and Derivatives Association (Isda), total notional volumes of interest rate and currency derivatives stood at $142.3 trillion at year-end 2003, a 14% growth on 2002 and nearly triple the notional outstanding just five years before. Equity derivatives saw year-on-year growth of 21% to stand at $3.44 trillion and credit derivatives saw year-on-year
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