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Derivatives

CDS Options Take Flight In Asia

Options on credit-default swaps have started to gain traction in Asia in recent weeks.

Options on credit-default swaps have started to gain traction in Asia in recent weeks. "This product has a real chance of taking off," said an official at Deutsche Bank. He said end users, such as hedge funds and regional banks, have been selling options on Asian names to pick up extra yield while spreads remain tight. Earlier this month ICAP said it executed the first trades on Asian names in the interdealer broker market. "Unlike equity-default swaps which are a new concept, options can be seen as the next extension of any market and something that customers can already run with," said Will Hornby, co-head of credit products at ICAP in Hong Kong, adding, "There is scope for tremendous growth." He added that it also recently facilitated what he believes to be the first Japanese credit-default option in the interdealer market, a USD20 million deal referenced to Mizuho Bank. "Japan will take longer given the low volatility," said Hornby.

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