reference credit

问题如下：

The head of the structured securities desk at an investment bankdirects all derivatives traders on the desk to use trade compressions on alleligible trades to reduce counterparty risk. One of the analysts decides to usetrade compression on a portfolio of single-name CDS contracts with the samematurity and transacted with two counterparties, as presented in the tablebelow, to estimate the investment bank’s compressed notional value:

What is the notional value of the investmentbank’s net contract on compressed trades only?

选项：

A.EUR 1 million.

B.EUR 2 million.

C.EUR 8 million.

D.EUR 15 million.

解释：

B is correct. In thetrade compression, only contracts on the same reference credit can becompressed, and so the bank’s long position with Digital Corporation on WKLCompany as reference credit is not considered. Therefore,

Net contract notionalvalue = Long 9,000,000 + Short 7,000,000 = Long 2,000,000

A is incorrect. LongEUR 1 million is the result of netting the trades with the same coupon andincorrectly stating it as a net long instead of a net short position.

C is incorrect. LongEUR 8 million is the result of netting all the trades.

D is incorrect. LongEUR 15 million is the result of summing the positions with the samecounterparty.