To quote Warren Buffet - ‘Derivatives are like hell - easy to enter and almost impossible to exit. ’Though this characterization may be glib, it does touch a nerve. In the financial world where risks are high and revenues are relatively low, credit derivatives become an attractive option for insurers, hedge funds and commercial banks. The attractiveness of credit derivatives can be attributed to the fact that such instruments offer a way to manage portfolio risk for buyers; promise high-yield returns for sellers; and for the global financial system as a whole, they could diversify and diminish risk, at least in theory.
