The next generation
The acceptance of credit default swaps and collateralised debt obligations into the credit mainstream and the creation of a standardised tradable index has paved the way for the development of a second generation of credit derivatives
The emergence of equity default swaps (EDS) has led to the development of a market for more EDS/CDS hybrid structured products following in the footsteps of the JPMorgan Odysseus transaction. But beyond hybrid EDS/CDS products, the development of a range of innovative structures linked to other asset classes testifies to the adaptability, flexibility and dynamism of the basic CDO template.
For example, equity-linked structures have been tailored so that the coupon on a CDO’s mezzanine tranche
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