title: Divergence

text: If a vector field with zero divergence is defined on a ball in , then there exists some vector field on the ball with . For regions in more topologically complicated than this, the latter statement might be false (see [[Poincaré lemma]]). The degree of "failure" of the truth of the statement, measured by the [[homology (mathematics)|homology]] of the [[chain complex]]


title: Divergence

text: serves as a nice quantification of the complicatedness of the underlying region . These are the beginnings and main motivations of [[de Rham cohomology]].


title: Divergence

text: It can be shown that any stationary flux that is twice continuously differentiable in and vanishes sufficiently fast for can be decomposed uniquely into an "irrotational part" and a "source-free part" . Moreover, these parts are explicitly determined by the respective "source densities" (see above) and "circulation densities" (see the article [[Curl (mathematics)|Curl]]):


title: Divergence

text: The source-free part, , can be similarly written: one only has to replace the "scalar potential" by a "vector potential" and the terms by , and the source density


title: Divergence

text: This "decomposition theorem" is a by-product of the stationary case of [[electrodynamics]]. It is a special case of the more general [[Helmholtz decomposition]], which works in dimensions greater than three as well.


title: Divergence

text: One can express the divergence as a particular case of the [[exterior derivative]], which takes a [[2-form]] to a 3-form in . Define the current two-form as


title: Divergence

text: It measures the amount of "stuff" flowing through a surface per unit time in a "stuff fluid" of density moving with local velocity . Its exterior derivative is then given by


title: Divergence

text: Here the superscript is one of the two [[musical isomorphism]]s, and is the [[Hodge star operator]]. When the divergence is written in this way, the operator formula_29 is referred to as the [[codifferential]]. Working with the current two-form and the exterior derivative is usually easier than working with the vector field and divergence, because unlike the divergence, the exterior derivative commutes with a change of (curvilinear) coordinate system.


title: Divergence

text: The appropriate expression is more complicated in [[Curvilinear coordinates#Grad, curl, div, Laplacian|curvilinear coordinates]]. The divergence of a vector field extends naturally to any [[differentiable manifold]] of dimension that has a [[volume form]] (or [[density on a manifold|density]]) , e.g. a [[Riemannian manifold|Riemannian]] or [[Lorentzian manifold]]. Generalising the construction of a [[two-form]] for a vector field on , on such a manifold a vector field defines an -form obtained by contracting with . The divergence is then the function defined by


title: Divergence

text: This means that the divergence measures the rate of expansion of a unit of volume (a [[volume element]]) as it flows with the vector field.


title: Divergence

text: On a [[pseudo-Riemannian manifold]], the divergence with respect to the volume can be expressed in terms of the [[Levi-Civita connection]] :


title: Divergence

text: where the second expression is the contraction of the vector field valued 1-form with itself and the last expression is the traditional coordinate expression from [[Ricci calculus]].


title: Divergence

text: where is the [[metric tensor|metric]] and formula_34 denotes the partial derivative with respect to coordinate . The square-root of the (absolute value of the [[determinant]] of the) metric appears because the divergence must be written with the correct conception of the [[volume]]. In curvilinear coordinates, the basis vectors are no longer orthonormal; the determinant encodes the correct idea of volume in this case. It appears twice, here, once, so that the formula_35 can be transformed into "flat space" (where coordinates are actually orthonormal), and once again so that formula_34 is also transformed into "flat space", so that finally, the "ordinary" divergence can be written with the "ordinary" concept of volume in flat space ("i.e." unit volume, "i.e." one, "i.e." not written down). The square-root appears in the denominator, because the derivative transforms in the opposite way ([[Covariance and contravariance of vectors|contravariantly]]) to the vector (which is [[Covariance and contravariance of vectors|covariant]]). This idea of getting to a "flat coordinate system" where local computations can be done in a conventional way is called a [[vielbein]]. A different way to see this is to note that the divergence is the [[codifferential]] in disguise. That is, the divergence corresponds to the expression formula_37 with formula_38 the [[differential of a function|differential]] and formula_39 the [[Hodge star]]. The Hodge star, by its construction, causes the [[volume form]] to appear in all of the right places.


title: Divergence

text: Divergence can also be generalised to [[tensor]]s. In [[Einstein notation]], the divergence of a [[contravariant vector]] is given by


title: Divergence

text: where denotes the [[covariant derivative]]. In this general setting, the correct formulation of the divergence is to recognize that it is a [[codifferential]]; the appropriate properties follow from there.


title: Divergence

text: Equivalently, some authors define the divergence of a [[mixed tensor]] by using the [[musical isomorphism]] : if is a -[[tensor]] ( for the contravariant vector and for the covariant one), then we define the "divergence of " to be the -tensor


title: White Boy Rick

text: White Boy Rick is a 2018 American crime drama film directed by Yann Demange and written by Andy Weiss, Logan Miller, and Noah Miller. The film stars Richie Merritt, Matthew McConaughey, Bel Powley, Jennifer Jason Leigh, Brian Tyree Henry, Rory Cochrane, RJ Cyler, Jonathan Majors, Eddie Marsan, Bruce Dern, and Piper Laurie. The film is loosely based on the story of Richard Wershe Jr., who in the 1980s became the youngest FBI informant ever at the age of 14.


title: White Boy Rick

text: "White Boy Rick" premiered at the Telluride Film Festival on August 31, 2018 and was released in the United States on September 14, 2018, by Sony Pictures Releasing. It received mixed reviews from critics and grossed over $25 million, $4 million short of its $29 million budget.


title: White Boy Rick

text: In 1984, Rick Wershe is a struggling single father living in Detroit during the height of the crack epidemic and war on drugs. His dissatisfied daughter, Dawn, leaves their home, leaving Rick alone with his son, Ricky. Rick manufactures gun parts and sells guns illegally to make ends meet, and involves his son in the sale of a pair of silenced Egyptian Kalashnikov rifles with local gangster Johnny Curry. Ricky becomes good friends with Johnny's brother, Boo, which earns him the favor of Johnny and his crew. News of Rick's activity attracts the attention of the FBI and he is questioned by two agents, Alex Snyder and Frank Byrd, who see Ricky as a potential asset due to his connections with the criminal underworld. They convince Ricky to become an undercover informant behind Rick's back in exchange for money and immunity for his father. Ricky is asked to sell drugs to keep up appearances, becoming captivated by his extravagant new lifestyle, and eventually gains enough credibility as a "legitimate" drug supplier. Rick is suspicious of his son and confronts Ricky when he finds thousands of dollars in illicit cash underneath his bed, causing a rift between them. While Ricky is meeting with Dawn at a diner one evening, his grandfather's car is stolen, and the two shoot at the fleeing car. They are arrested but bailed out by Ricky's handlers, which arouses suspicion from Johnny.


title: White Boy Rick

text: At a party following a boxing match in Las Vegas, Johnny beats his rival's friend, Black Ed, within an inch of his life with a bottle of champagne. Afterwards, he orders a drive-by on the home of his rival, Leon Lucas, killing one of his young nephews. Ricky learns that the weapons used were the same AKs he had sold to Johnny. Devastated by his involvement in the murder of a child, he keeps a low profile and mends his relationship with his father. Johnny suspects Ricky is an informant and sends Nug to his house, who shoots him in the stomach. While at the hospital, Snyder informs Ricky that they have enough evidence to raid all of Johnny's safe houses, and asks him to forget about the shooting in exchange for dropping all charges on his father.


title: White Boy Rick

text: A year later in 1986, Brenda Moore's brother tells Ricky that Brenda had a daughter named Keisha, and that Ricky is the father. Rick and Ricky come over to see the child, who wins over the affection of both of them. Later on, they find Dawn at a drug den and forcibly take her home to detox. She eventually makes a full recovery after several days.


title: White Boy Rick

text: In 1987, Ricky goes back to selling crack and assumes the role that Johnny left behind, even going so far as having sex with his wife, Cathy. Rick discovers he has earned more than enough money to make his father's dream of opening up a video store come true. FBI agents arrest Ricky and he is held on drug possession with intent to distribute which could land him a potential life sentence. Ricky's former handlers deny their relationship with him, but promise they will try to get his sentence reduced if he cooperates on one last bust. Ricky has Cathy help him out with a large shipment of drugs, the FBI raid the deal, and arrest everyone involved. Ricky is found guilty and is sentenced to life in prison. Rick confronts the two agents about their deal but they feign ignorance.


title: White Boy Rick

text: After another year, Dawn, Rick, and Keisha visit Ricky in prison. Rick tries to give his son hope but Ricky laments that his life is over. Rick tears up and apologizes for not being able to give him an easy life like he wanted. The credits reveal that Ricky was imprisoned for over 30 years, holding the record for the longest prison term for a non-violent offender in the state of Michigan. He was finally released on parole in 2017. His father died in 2014. His daughter, Keisha, is now happily married with two sons. A voice recording of the real Ricky Wershe Jr. plays in the background, saying that nobody thought he should really be in prison, but that he was feeling happy and hopeful.


title: White Boy Rick

text: In February 2015, Studio 8 acquired a spec script by Logan Miller and Noah Miller, titled "White Boy Rick".


title: White Boy Rick

text: In November 2016, Matthew McConaughey joined the cast of the film, with Yann Demange directing the film, Darren Aronofsky, Scott Franklin and John Lesher produced the film under their Protozoa Pictures and LBI Entertainment banners, respectively. In January 2017, Bruce Dern and Jennifer Jason Leigh joined the cast of the film. In February 2017, Bel Powley and Brian Tyree Henry joined the cast of the film. In March 2017, Richie Merritt, Jonathan Majors, YG, Taylour Paige, Piper Laurie and RJ Cyler joined the cast of the film.


title: White Boy Rick

text: Principal photography began on March 14, 2017. Following audience testing, in which the film scored quite high—in the 90s—director Yann Demange was given the go-ahead to shoot extra scenes.


title: White Boy Rick

text: The film was originally scheduled to be released on January 12, 2018, but was pushed back two weeks from its original release date of January 12, 2018, to January 26, 2018, and was pushed back again from January 26, 2018, to August 17, 2018, after successful test screenings. In April 2018 it was pushed back again from August 17, 2018, to September 14, 2018. It had its world premiere at the Telluride Film Festival on August 31, 2018. It was also screened at the 2018 Toronto International Film Festival on September 7, 2018.


title: White Boy Rick

text: In the United States and Canada, "White Boy Rick " was released alongside "The Predator", "A Simple Favor" and "", and was projected to gross $5–9 million from 2,504 theaters in its opening weekend. It ended up debuting to $8.8 million, finishing fourth behind "The Predator", "The Nun" and "A Simple Favor". It dropped 43% in its second weekend to $5 million, finishing sixth.


title: White Boy Rick

text: On review aggregator Rotten Tomatoes, the film holds an approval rating of based on reviews, with an average rating of . The site's critical consensus reads, "Solid work from the cast - particularly a scene-stealing Matthew McConaughey - helps "White Boy Rick" make up for a number of missed opportunities in the script." On Metacritic, the film has a weighted average score of 59 out of 100, based on 35 critics, indicating "mixed or average reviews". Audiences polled by CinemaScore gave the film an average grade of "B" on an A+ to F scale, while PostTrak reported filmgoers gave it a 64% positive score and a 44% "definite recommend".


title: The Killing (Danish TV series)

text: The Killing () is a Danish police procedural drama television series created by and produced by DR in co-production with ZDF Enterprises. It premiered on the Danish national television channel DR1 on 7 January 2007, and has since been broadcast in several other countries.


title: The Killing (Danish TV series)

text: The series is set in Copenhagen and revolves around Detective Inspector Sarah Lund (Sofie Gråbøl). Each series follows a murder case day-by-day. Each fifty-minute episode covers twenty-four hours of the investigation. The series is noted for its plot twists, season-long storylines, dark tone and for giving equal emphasis to the stories of the murdered victim's family and the effect in political circles alongside the police investigation. It has also been singled out for the photography of its Danish setting, and for the acting ability of its cast.


title: The Killing (Danish TV series)

text: "The Killing" has proved to be an international success, particularly in the United Kingdom, Germany and the Netherlands, receiving numerous awards and nominations including a BAFTA Award and an International Emmy. It has become something of a cult show. Novelisations of each series have been published by Macmillan.


title: The Killing (Danish TV series)

text: Søren Sveistrup, series creator and head writer, worked closely with lead actress Sofie Gråbøl throughout the writing process to develop the character of Detective Inspector Sarah Lund. Gråbøl, in particular, became eager to defend her character. Gråbøl had a history of playing emotionally demonstrative characters on Danish televisionshe had worked with Sveistrup before on the TV-series "Nikolaj og Julie"he approached her direct to play the part of Lund before work on the script began.


title: The Killing (Danish TV series)

text: Despite her insistence that she wanted to play an "isolated person [who is] unable to communicate" Gråbøl initially found it difficult to strike the right balance for the emotionally-distant Lund and then realised that the only people she knew, who were like the character, were men. As a result, she began "acting like a man" until the character took shape.


title: The Killing (Danish TV series)

text: During filming of the first series, Sveistrup also refused to reveal the identity of the murderer or even specific plot points to members of the cast, including Gråbøl. The actors would receive the scripts only on an episode-by-episode basis just moments before shooting was scheduled to begin. Only Gråbøl was told that she was not the killer.


title: The Killing (Danish TV series)

text: The first series consists of twenty fifty-minute episodes, which follow the police investigation into the murder of a young woman from its commencement on 3 November to its conclusion on 22 November.


title: The Killing (Danish TV series)

text: The first ten episodes were shown on DR1 each Sunday from early January to the middle of March 2007 and the intention was to show the remaining ten episodes in January–March 2008; it was so popular in Denmark that in early March it was announced that the final ten episodes would be brought forward to the autumn of 2007; they were shown from late September to late November 2007.


title: The Killing (Danish TV series)

text: "Forbrydelsen II" is set two years later and consists of ten episodes. It aired in Denmark between 27 September and 29 November 2009. Episodes were screened eleven days later on Thursdays on Norwegian NRK1. It was shown on German TV channel ZDF and on Swedish SVT in the autumn of 2010. In the United Kingdom, it was shown on BBC Four, starting from 19 November 2011, following the success of the first series, on the Belgian channel, Canvas, starting on 25 November 2011, and in Australia on SBS Two, starting from 21 March 2012. The Region 2 DVD with English subtitles was released on 19 December 2011.


title: The Killing (Danish TV series)

text: Inspector Ulrik Strange arrives at a port where Lund is working as a border guard, on the orders of her former boss, Brix, to ask her to return to help investigate the murder of Anne Dragsholm, a military adviser found murdered in Ryvangen Memorial Park. Lund suspects that the murder is not as straightforward as it seems, despite the forced confession of Dragsholm's husband. Meanwhile, Thomas Buch, the newly appointed Minister of Justice, suspects that his predecessor was involved in the cover-up of a massacre of Afghan civilians by Danish soldiers and that this incident is connected with the murder. Lund is about to be discharged from the case when a second killing, that of a Danish military veteran, leads to fears that Islamic extremists are involved. Jens Peter Raben, a sectioned war veteran, knew both victims and tells his story of the execution of an Afghan family by a special forces officer named "Perk". Raben escapes, and two other members of the unit are murdered. Suspicion falls on senior military officers, including Raben's father-in-law, Colonel Jarnvig.


title: The Killing (Danish TV series)

text: Buch and his secretarial team uncover further evidence of the cover-up, but the cabinet pressures him to continue pinning the murders on Muslims in order to assure the passage of an anti-terrorism bill. Raben takes refuge in a church presided over by a former army chaplain, who tries to convince him to give himself up and stop investigating the killings. Lund discovers the chaplain's body and pursues the perpetrator. She arranges for the exhumation of Perk's body. When Lund and Strange catch up with Raben, he calls out Perk's name before Strange shoots him. An injured Raben persists in accusing Strange of being the officer responsible for the massacre, yet it is later officially confirmed that he had left Afghanistan before the killings. Lund is uneasy about Strange's alibis for the murders, but takes him with her to Afghanistan to investigate a new suspect. Lund's persistence results in the discovery of the bones of the Afghan civilians.


title: The Killing (Danish TV series)

text: Upon returning to Denmark, Lund meets her mother, who has had a premonition of Lund lying dead. Following a further search of a military barracks, suspicion falls on Captain Bilal, an anti-Taliban Muslim who kidnaps Raben's wife Louise. Raben and Jarnvig lead Lund and Strange to Bilal, who is killed by an explosion before they are able to question him. Strange volunteers to return Raben to the mental hospital, but Lund insists on driving them. On the way, they make a stop at the scene of Dragsholm's murder, where Lund points out to Strange the reasons why Bilal is unlikely to have been involved. Strange reveals a detail that only the murderer could know, and confesses to the murders before shooting Lund with her own gun, which he then plants on Raben. He phones the police and is about to shoot Raben when Lund hits him over the head. When Strange tries to retrieve his gun, Lund shoots him dead. As the police arrive at the scene, Lund walks away, removing her bullet-proof vest.


title: The Killing (Danish TV series)

text: "Forbrydelsen III", premiered on Danish television on 23 September 2012. It commenced on NRK1 in Norway on Monday 8 October 2012, with an audience of 436,000.


title: The Killing (Danish TV series)

text: This final ten-part series begins with the murder of a sailor. Sarah Lund's investigation turns to the financial and governmental communities during the global financial crisis.


title: The Killing (Danish TV series)

text: In the wake of the successful "Wallander" series, "The Killing" became another Scandinavian crime hit with British viewers when it was shown on BBC Four in the spring of 2011. Although subtitled, it attracted more viewers than "Mad Men", scored audience appreciation figures of 94%, and was described as "the best series currently on TV". The success created an interest in all things Danish, and the female detective's Faroese jumper was the subject of newspaper articles as well as becoming a sought after online item.


title: The Killing (Danish TV series)

text: As well as the UK, DR also sold the series to a number of other broadcasters worldwide, and "The Killing" was eventually shown in Australia, Austria, Belgium, Brazil, Canada, Germany, Japan, Russia, Spain and the US with varying degrees of success. Producer Piv Bernth described the broad appeal of the show as "groundbreaking", and explained what she believed to be the root of its popularity: "It's the first time you have a detective drama over 20 episodes – other series had one killing per episode. And we also have this three-plot structure – what does it [a murder] mean for a police investigator, what does it mean for the parents, what does it mean for the politicians. It's not just about finding the murderer. That's important, but it's not all."


title: The Killing (Danish TV series)

text: Over 120 countries have purchased the first two seasons of The Killing. The first series has also been shown in other countries, as follows:


title: The Killing (Danish TV series)

text: "The Killing" has been awarded a number of awards and recognitions from various festivals and organisations from around the globe since it began in 2007. Because of the time-lapse in airdates between countries, honours awarded to the first two series are spread out over an unusual number of years.


title: The Killing (Danish TV series)

text: In the UK, the first series won the 2011 BAFTA award in the "Best International" category. It was also nominated for the Audience Award but lost to reality show "The Only Way is Essex". The second series was again nominated for "Best International" in 2012, but lost out to fellow Danish programme "Borgen".


title: The Killing (Danish TV series)

text: Following both its critical and ratings success in the United Kingdom, the BBC began importing and broadcasting more subtitled programmes from a number of different countries. In 2012 the popular Danish drama "Borgen" and the more popular joint Swedish-Danish venture "The Bridge" both aired on BBC Four with similarly high viewing figures, while in the same year ITV3 also acquired the original TV2 series "Those Who Kill". In late 2011 digital channel Sky Arts also broadcast the Italian series "Romanzo Criminale", while FX bought the rights to popular French cop show "Braquo".


title: The Killing (Danish TV series)

text: Although BBC Four had shown subtitled dramas before, notably the Swedish version of "Wallander" and French police procedural "Spiral", controller of the channel Richard Klein described "The Killing" as "a game-changer". Vicky Frost of "The Guardian" noted how it was "The Killing" which "paved the way for a wave of subtitled European crime dramas" appearing on UK television, while head of programming at FX Toby Etheridge also confirmed his belief that ""The Killing" proved it was possible [to successfully show subtitled drama]".


title: The Killing (Danish TV series)

text: In 2011, a US remake was produced by the American cable network AMC. The original series was not broadcast in the US. A remake was produced by Fox Television Studios for the American cable network AMC. It premiered on 3 April 2011 and ran for two seasons before being cancelled on 27 July 2012. However, on 8 November 2012, it was confirmed that Fox Television Studios were in final negotiations with Netflix in order to continue the series for a third season. AMC, who had originally cancelled the show, was also included in part of the deal. The deal in question gives the network the privilege of airing the new episodes before they are hosted by Netflix in return for sharing any associated production costs with Netflix. The original US production team are expected to return. A fourth season, consisting of six episodes, was produced by and is available on Netflix.


title: The Killing (Danish TV series)

text: On 8 April 2011, Sofie Gråbøl, the star of the Danish series, was interviewed on the BBC Radio 4 programme "Woman's Hour" when she explained the American remake was necessary because Americans "for some reason cannot read subtitles, or they don't want to". Gråbøl herself has made a guest appearance in one episode of the American show playing a minor role.


title: The Killing (Danish TV series)

text: A Turkish remake, "", was produced by Adam Film for Kanal D, premiering 7 January 2014. Despite being ordered for 13 episodes, it was cancelled after 5 due to low ratings.


title: The Killing (Danish TV series)

text: A Egyptian remake, "Mounatef Khater" was produced, the rights were previously acquired by MBC and Charisma Group.


title: The Killing (Danish TV series)

text: A novelisation based on the first series and titled "The Killing: Book One" was published by Macmillan in 2012. The book was written by British author David Hewson. This was followed by "The Killing: Book Two" in January 2013, and "The Killing: Book Three" in February 2014.


title: Paul Mooney (comedian)

text: Paul Gladney (August 4, 1941 – May 19, 2021), better known by the stage name Paul Mooney, was an American comedian, writer, and actor.


title: Paul Mooney (comedian)

text: He collaborated with Redd Foxx, Eddie Murphy and Dave Chappelle, wrote for comedian Richard Pryor and the television series "Sanford and Son", "In Living Color" and "Chappelle's Show", as well as acting in "The Buddy Holly Story" (1978), Spike Lee's satirical film "Bamboozled" (2000) and "Chappelle's Show".


title: Paul Mooney (comedian)

text: Mooney was born in 1941 in Shreveport, Louisiana, and moved to Oakland, California, seven years later. His parents were George Gladney and LaVoya Ealy. Mooney was raised primarily by his grandmother Aimay Ealy, known among the family as "Mama". Gladney coined the nickname "Mooney" after the original "Scarface" (1932) actor Paul Muni (which itself was the actor's stage name).


title: Paul Mooney (comedian)

text: Mooney became a ringmaster with the Gatti-Charles Circus. During his stint as ringmaster, he always found himself writing comedy and telling jokes, which later helped Mooney land his first professional work as a writer for Richard Pryor.


title: Paul Mooney (comedian)

text: Mooney wrote some of Pryor's routines for his appearance on "Saturday Night Live", co-wrote his material for the "", "Bicentennial Nigger", and "Is It Something I Said" albums, and Pryor's film "Jo Jo Dancer, Your Life Is Calling". As the head writer for "The Richard Pryor Show", he gave many young comics, such as Robin Williams, Sandra Bernhard, Marsha Warfield, John Witherspoon, and Tim Reid, their first break into show business.


title: Paul Mooney (comedian)

text: Mooney also wrote for Redd Foxx's "Sanford and Son" and "Good Times", acted in several cult classics including the Richard Pryor comedy films "Which Way Is Up?", "Bustin' Loose", and the cult satirical comedy "Hollywood Shuffle", and portrayed singer/songwriter Sam Cooke in "The Buddy Holly Story".


title: Paul Mooney (comedian)

text: He was the head writer for the first year of Fox's "In Living Color", inspiring the character Homey D. Clown, played by Damon Wayans. Mooney later went on to play Wayans' father in the Spike Lee film "Bamboozled" as the comedian Junebug.


title: Paul Mooney (comedian)

text: Mooney initially appeared in the sketches "Ask a Black Dude" and "Mooney at the Movies" on Comedy Central's "Chappelle's Show". He later appeared as Negrodamus, an African American version of Nostradamus. As Negrodamus, Mooney ad-libbed the "answers to life's most unsolvable mysteries" such as "Why do white people love Wayne Brady?" (Answer: "Because Wayne Brady makes Bryant Gumbel look like Malcolm X.") Mooney was planning to reprise his role as Negrodamus in the third season of the "Chappelle's Show", before Dave Chappelle left the show due to creative and contractual differences.


title: Paul Mooney (comedian)

text: In 2006, Mooney hosted the BET tribute to Black History Month titled "25 Most @#%! Moments in Black History". In this show, he narrated some of the most shameful incidents involving African Americans since 1980. The top 25 moments included incidents involving Marion Barry, Terrell Owens, Wilson Goode, Michael Jackson, Flavor Flav, Whitney Houston, and Tupac Shakur.


title: Paul Mooney (comedian)

text: In November 2014, Paul's brother announced that Mooney had prostate cancer. Mooney continued to tour, and perform his stand-up comedy act.


title: Paul Mooney (comedian)

text: In September 2005, Mooney performed a segment at the 2005 BET Comedy Awards called the "Nigga Wake Up Call Award", in which he jokingly presents an award to African American celebrities who neglected their blackness to try and blend in with Caucasians, only to find out they're still a "nigga" in their eyes. The "nominees" included Michael Jackson, Oprah Winfrey, Lil' Kim, and Diana Ross. Mooney awarded Ross and made numerous jokes about Ross's 2002 arrest for DUI. According to people who were in attendance, Mooney also made light of the death of Ross's ex-husband Arne Næss Jr., who fell while mountain climbing in 2004. Tracee Ellis Ross, Ross's daughter and Næss's stepdaughter, was also in attendance. She reportedly was so offended and embarrassed that she left the room. Backstage in the press room, Mooney was asked if he felt his performance was "over the top". Mooney replied:


title: Paul Mooney (comedian)

text: On November 26, 2006, Mooney appeared on CNN and talked about how he would stop using the word "nigga" due to Michael Richards's outbursts on stage at the Laugh Factory. He referred to Richards as having become "his Dr. Phil" and "cured" him of the use of the epithet. Mooney also said, "We're gonna stop using the n-word. I'm gonna stop using it. I'm not gonna use it again and I'm not gonna use the b-word. And we're gonna put an end to the n-word. Just say no to the n-word. We want all human beings throughout the world to stop using the n-word."


title: Paul Mooney (comedian)

text: On November 30, Mooney elaborated upon these remarks from his appearance on CNN as a guest of Farai Chideya on the National Public Radio program "News & Notes". He declared that he would convene a conference on this controversial subject in the near future, as well as perform his first "n-free" comedy in the upcoming days.


title: Paul Mooney (comedian)

text: That show, which he performed at the Lincoln Theater following a set by Dick Gregory, took place on December 2, 2006. Mooney almost made it through his entire set—about an hour of jokes—before he mistakenly used the word in a routine on O. J. Simpson. He ran off stage covering his face in his hands, and walked back on a few moments later saying, "I'm really going to get it now. This is probably already on the Internet." On the BET special "25 Events that Mis-Shaped Black America", Mooney reiterated that he was no longer using the word. He was quoted as saying, "I am no longer going to use the n-word. Instead of saying 'What's up my nigga,' say 'What's up my Michael Richards.'" At a summit with Jesse Jackson, Reverend Al Sharpton and Richards, Mooney forgave Richards.


title: Paul Mooney (comedian)

text: In an August 2019 interview with Comedy Hype, Richard Pryor's ex-bodyguard, Rashon Khan, alleged that Mooney had molested Pryor's son, Richard Pryor Jr., when Pryor Jr. was a child. Khan also alleged that Pryor had expressed a desire to have Mooney killed in a murder-for-hire plot over this incident and was only prevented from doing so by his 1980 fire incident. Richard Pryor Jr. has confirmed he was raped, but did not mention Mooney by name as his alleged rapist.


title: Paul Mooney (comedian)

text: In his book "Black Is the New White", Mooney talks about his partnership with Richard Pryor, from their first meeting to Pryor's death in 2005. Mooney reflects on his childhood and some of the most notorious moments in his life, including organizing a performers' strike on the Comedy Store and publicly giving up the n-word after Michael Richards' onstage outburst. It features a foreword written by Dave Chappelle.


title: Suicide bag

text: A suicide bag, also known as an exit bag or hood, is part of a euthanasia device consisting of a large plastic bag with a drawcord used to commit suicide through inert gas asphyxiation. It is usually used in conjunction with a flow of an inert gas that is lighter or less dense than air, like helium or nitrogen, which prevents the panic, sense of suffocation and struggling before unconsciousness, known as the hypercapnic alarm response caused by the presence of high carbon dioxide concentrations in the blood. This method also makes the direct cause of death difficult to trace if the bag and gas canister are removed before the death is investigated. While asphyxiation by helium can be detected at autopsy, there is currently no test that can detect asphyxiation by nitrogen. For this reason, nitrogen is commonly the preferred choice for people who do not want the cause of death established.


title: Suicide bag

text: Self-administered and assisted suicides by asphyxiation using a plastic bag with helium were first recorded in the 1990s. Since the 2000s, guides have spread on the internet, in print and on video and the frequency of suicides by this method has increased.


title: Suicide bag

text: The suicide bag with inert gas method was originally developed by John Hofsess and the NuTech group, which consisted of Hofsess, Derek Humphry, engineers and physicians.


title: Suicide bag

text: In the book "Final Exit" by Derek Humphry, a suicide bag was described as a large plastic bag with an adjustable velcro strip around the neck. Its use with inert gases was mentioned in the "Supplement to Final Exit" in 2000.


title: Suicide bag

text: The euthanasia-rights advocacy group Exit Australia distributed a manufactured version of the bag in Australia in 2002, alarming government officials and anti-abortion groups. The Australian chapter of Right to Life expressed concern that they would be used by vulnerable people.


title: Suicide bag

text: In 2007, "The Vancouver Sun" cited Russel Ogden, Canadian criminologist and right-to-die advocate, who said that the combination of a suicide bag and helium was "a method of choice" within the right-to-die movement for people who are terminally ill and that its promotion does not appear to cause an increase in the number of suicides. However, he said that he has no way of knowing if the method was being used by people with terminal illness or by people who are mentally ill.


title: Suicide bag

text: In 2008, Ludwig Minelli, founder of Dignitas, filmed four people committing suicide by helium inhalation. Subsequent to this, the method "has been winning supporters both in the USA and in Europe as a reliable, rapid and painless way to die".


title: Suicide bag

text: In 2009, Philip Nitschke, founder of voluntary euthanasia organisation Exit International, wrote in a member newsletter that nitrogen has a lower risk of an adverse reaction by the body than helium and is also more available than helium in Australia and New Zealand. Nitschke's organisation sells suicide kits that contain nitrogen tanks and regulators. He promotes the use of nitrogen and suicide bags with lectures and films, such as "Doing it with Betty" – in which an elderly woman describes how to make a plastic 'exit' bag, and with published materials such as workshop handbooks. Nitschke calls the suicide bag death a "hypoxic death", and likens it to pneumonia, the "old person's friend", where hypoxia occurs because pneumonic inflammation stops the lungs extracting sufficient oxygen from the air, and "a peaceful death often results".


title: Suicide bag

text: In 2015 author and right-to-die advocate Derek Humphry reported that Worthington Industries, the world's largest manufacturer of disposable helium cylinders, had announced that their helium cylinders will guarantee only 80% helium, with up to 20% air, making them inappropriate for use with a suicide bag in Humphry's opinion.


title: Suicide bag

text: In many countries it has also become increasingly difficult for private individuals to obtain cylinders of nitrogen for possible use with a suicide bag as suppliers have been alerted to this method and there are few other reasons for a private individual to seek to purchase a cylinder of nitrogen.


title: Suicide bag

text: Dutch psychiatrist Boudewijn Chabot, in his 2015 book "Dignified Dying", calls the suicide bag with inert gas method "rapid, painless and safe".


title: Suicide bag

text: Selling suicide bags is prohibited in some places. In 2011, the FBI raided a small mail-order business in California, which shut down afterwards. In July 2011, this raid caused Oregon to be the first US state to pass legislation prohibiting the sale of kits containing suicide bags or hoods.


title: Suicide bag

text: Canadian right-to-die advocates stopped shipping suicide bags to Australia in 2001 when the Australian government announced that it would review their importation. In 2002, the Queensland Police in Australia said that suicide bags did not violate any laws at that time and the Australian federal government said it would look into banning them. Exit Australia gave them away to members upon request; they put warning labels on them, written as "exit bags". No instructions were included, in order to circumvent Australian laws against assisting suicide.


title: Suicide bag

text: A hypoxic, carbon dioxide free metabolically inert gas that is less dense than air is provided for inhalation by confining the continually flowing less dense (than air) gas supply and the head in an impermeable bag which is slightly open at the lower neck, which continuously fills from the closed top down to the slightly open neck. This prevents contamination with oxygen from the surrounding air, and also flushes away any exhaled , minimising the amount of gas required. It will not work with inert gases like Argon that are denser/heavier than air as these would just spill out the open neck of the bag and not fill it first from the sealed top downwards. (The same effect could also be reached by flooding any enclosed space with the gas, but much more gas would be needed, and this would be hazardous to a third party entering the space, an effect which is well known as a cause of industrial fatalities.)


title: Suicide bag

text: Inhalation of oxygen deficient or oxygen free gas not only fails to replenish oxygen used in normal metabolism, but causes the blood passing through the capillaries of the gas exchange regions of the lungs to lose residual oxygen in relation to the concentration difference between the oxygen in the alveolar air and in the blood in the alveolar capillaries. This causes a far quicker drop in blood oxygen level than holding the breath. The deoxygenated blood then passes through the systemic circulation to the vital organs, including the brain, and rapidly lowers oxygen concentrations below the level required to sustain consciousness, and when it is insufficient to keep the heart functioning, cardiac arrest will occur. For the majority of people, an alveolar oxygen tension of less than or 4% by volume at atmospheric pressure is not sufficient to support consciousness.


title: Suicide bag

text: The urge to breathe, in normal humans, is mainly controlled by blood carbon dioxide concentration and the acidity that it causes. A rise in carbon dioxide concentration caused by the inability to inhale fresh air will cause a strong reflex to breathe, accompanied by increasing distress as the level rises, culminating in panic and desperate struggle for air. However, if the supplied breathing gas is free of carbon dioxide, the blood carbon dioxide levels will remain low while breathing occurs, and there will be no distress or urge to increase breathing rate, as the sensitivity in normal people to blood oxygen level as a breathing stimulus is very low.


title: Suicide bag

text: The effect of contamination of the inert gas by air or other source of oxygen is to reduce the effects of oxygen loss and the person exposed may feel weak, tired and confused, but without a strong urge to breathe or the associated respiratory distress. The efficiency of the system for euthanasia requires minimising contamination by oxygen and carbon dioxide. Small amounts of oxygen will not affect the result, but may extend the time taken.


title: Suicide bag

text: Helium and nitrogen are non-toxic and can be breathed with no ill effects over short or long term when oxygen levels are sufficient, and present no health risk to third parties except asphyxiation. The danger lies in that they are undetectable by human senses, and the first warning of their presence in asphyxiant concentrations may be loss of consciousness. Lower concentrations may cause confusion and weakness. Use of a suicide bag in a well ventilated room using either of these gases is unlikely to pose a hazard for other people, and there is no fire hazard.


title: Suicide bag

text: Propane, butane and natural gas are to varying degrees narcotic, and are a serious fire and explosion hazard, depending on concentration of the gas and of oxygen. They are usually supplied with strong-smelling additives to provide a warning. These additives may be toxic in large doses, but the concentrations which are needed to indicate the presence of the gas are not dangerous over short terms. The unpleasant smell may be a deterrent to more widespread use as a euthanasia agent, but the primary purpose is a warning of fire hazard.


title: Suicide bag

text: Propane has low toxicity since it is not readily absorbed and is not biologically active. It is heavier than air and may accumulate in low places, particularly if they are poorly ventilated.


title: Suicide bag

text: Non inert gases: Butane is similar to propane, and heavier, and has narcotic effects in large doses. Natural gas is lighter than air and disperses quickly in a well ventilated area.


title: Suicide bag

text: Suicide bags have been used with gases other than inert gases, with varying outcomes. Examples of other gases used are propane-butane, which has narcotic effects, and is commonly adulterated with strong smelling additives to warn of gas leaks, and natural gas.


title: Suicide bag

text: Suicides using a suicide bag and an inert gas produce no characteristic post-mortem macroscopic or microscopic findings. Forensic death investigations of cause and manner of death may be very difficult when people die by suicide in this manner, especially if the apparatus (such as the bag, tank, or tube) is removed by someone after the death. Petechiae, which are often considered a marker of asphyxia, are present in only a small minority of cases (3%). Frost reported that of the two cases he studied that featured death from inert gas asphyxiation using a suicide bag, one had "bilateral eyelid petechiae and large amounts of gastric content in the airways and that these findings challenge the assumption that death by this method is painless and without air hunger, as asserted in "Final Exit"." A review study by Ely and Hirsch (2000) concludes that conjunctival and facial petechiae are the product of purely mechanical vascular phenomena, unrelated to asphyxia or hypoxia, and do not occur unless ligatures were also found around the neck. The authors wrote,


title: Suicide bag

text: There are also documented cases of suicide attempts using the suicide bag that failed. A case report study in 2015 discussed the risks associated with failed attempts using this method. The authors wrote, "If the process is interrupted by someone, there is no gas or the tube slips out of the bag, there is a high risk of severe hypoxia of the central nervous system" (in survivors).


title: Suicide bag

text: Brain cells are very sensitive to reduced oxygen levels. Once deprived of oxygen they will begin to die off within five minutes.


title: Suicide bag

text: If hypoxia results in coma, the length of unconsciousness is often indicative of long-term damage. In some cases coma can give the brain an opportunity to heal and regenerate, but, in general, the longer a coma, the greater the likelihood that the person will remain in a vegetative state until death.


title: Suicide bag

text: Russel Ogden (2002) said that the existence of "how-to" literature involving the suicide bag has been "shown to influence the choice of suicide method but not the overall suicide rate, and that an emerging counterculture of death providers, operating outside of the traditional medicolegal framework of health care, was placing assisted death outside the normative gaze of medicine". In 2010, Ogden and colleagues observed four cases of assisted suicide with helium delivered by face mask. The authors stated that a hood method might be able to play a role in "demedicalising assisted suicide". Ogden views a bag and inert gas as "the quickest way to go; used properly, you're unconscious after the second breath and dead in about 10 minutes".


title: Suicide bag

text: Clinical psychologist Phillip Kleespies said that Ogden's work calls attention to some of the risks associated with covert assisted suicide using unregulated methods like the suicide bag with inert gas. He does not dispute that the method is "swift, highly lethal and painless", as claimed by Ogden and other right-to-die proponents. However Kleespies feels it is an undignified, impersonal and "hurried" manner of death, which may be used by people who have not had the opportunity for appropriate counseling and that this is largely a result of more dignified methods being made illegal. He concludes by expressing the hope that with improved and more appropriate care during the dying phase of life, there will be less perceived need for these methods of self-deliverance.


title: Suicide bag

text: A study poses the dilemma for medical ethicists and the general public who "may also want to carefully weigh the unintended adverse consequences of widely disseminated suicide methods likely to appeal to some depressed persons (irrespective of their physical health status or age) against the putative benefits associated with making these methods more widely known and available".


title: Suicide bag

text: Promoters of this suicide method recommend it to terminally ill patients. However, across the world, most people who use suicide bags are physically healthy. Instead of having incurable cancer or other life-threatening physical diseases, most of the users have psychiatric disorders or substance abuse problems that might possibly be addressed through medical and psychological treatment. The demographics of its users varies; in one survey, the method had been used mostly by middle-aged adults in failing health, who were attracted to the relative nonviolence of the method.


title: Suicide bag

text: This suicide method is also typically used by younger or middle-aged adults, rather than by older adults. In the US, it is more commonly chosen by non-Hispanic white males than by women or people of other races.


title: Credit default swap

text: A credit default swap (CDS) is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default (by the debtor) or other credit event. That is, the seller of the CDS insures the buyer against some reference asset defaulting. The buyer of the CDS makes a series of payments (the CDS "fee" or "spread") to the seller and, in exchange, may expect to receive a payoff if the asset defaults.


title: Credit default swap

text: In the event of default, the buyer of the credit default swap receives compensation (usually the face value of the loan), and the seller of the CDS takes possession of the defaulted loan or its market value in cash. However, anyone can purchase a CDS, even buyers who do not hold the loan instrument and who have no direct insurable interest in the loan (these are called "naked" CDSs). If there are more CDS contracts outstanding than bonds in existence, a protocol exists to hold a credit event auction. The payment received is often substantially less than the face value of the loan.


title: Credit default swap

text: Credit default swaps in their current form have existed since the early 1990s and increased in use in the early 2000s. By the end of 2007, the outstanding CDS amount was $62.2 trillion, falling to $26.3 trillion by mid-year 2010 and reportedly $25.5 trillion in early 2012. CDSs are not traded on an exchange and there is no required reporting of transactions to a government agency. During the 2007–2010 financial crisis the lack of transparency in this large market became a concern to regulators as it could pose a systemic risk. In March 2010, the Depository Trust & Clearing Corporation (see Sources of Market Data) announced it would give regulators greater access to its credit default swaps database. There is "$8 trillion notional value outstanding" as of June 2018.


title: Credit default swap

text: CDS data can be used by financial professionals, regulators, and the media to monitor how the market views credit risk of any entity on which a CDS is available, which can be compared to that provided by the Credit Rating Agencies.


title: Credit default swap

text: Most CDSs are documented using standard forms drafted by the International Swaps and Derivatives Association (ISDA), although there are many variants. In addition to the basic, single-name swaps, there are basket default swaps (BDSs), index CDSs, funded CDSs (also called credit-linked notes), as well as loan-only credit default swaps (LCDS). In addition to corporations and governments, the reference entity can include a special purpose vehicle issuing asset-backed securities.


title: Credit default swap

text: Some claim that derivatives such as CDS are potentially dangerous in that they combine priority in bankruptcy with a lack of transparency. A CDS can be unsecured (without collateral) and be at higher risk for a default.


title: Credit default swap

text: A CDS is linked to a "reference entity" or "reference obligor", usually a corporation or government. The reference entity is not a party to the contract. The buyer makes regular premium payments to the seller, the premium amounts constituting the "spread" charged in basis points by the seller to insure against a credit event. If the reference entity defaults, the protection seller pays the buyer the par value of the bond in exchange for physical delivery of the bond, although settlement may also be by cash or auction.


title: Credit default swap

text: A default is often referred to as a "credit event" and includes such events as failure to pay, restructuring and bankruptcy, or even a drop in the borrower's credit rating. CDS contracts on sovereign obligations also usually include as credit events repudiation, moratorium, and acceleration. Most CDSs are in the $10–$20 million range with maturities between one and 10 years. Five years is the most typical maturity.


title: Credit default swap

text: An investor or speculator may "buy protection" to hedge the risk of default on a bond or other debt instrument, regardless of whether such investor or speculator holds an interest in or bears any risk of loss relating to such bond or debt instrument. In this way, a CDS is similar to credit insurance, although CDSs are not subject to regulations governing traditional insurance. Also, investors can buy and sell protection without owning debt of the reference entity. These "naked credit default swaps" allow traders to speculate on the creditworthiness of reference entities. CDSs can be used to create synthetic long and short positions in the reference entity. Naked CDS constitute most of the market in CDS. In addition, CDSs can also be used in capital structure arbitrage.


title: Credit default swap

text: A "credit default swap" (CDS) is a credit derivative contract between two counterparties. The buyer makes periodic payments to the seller, and in return receives a payoff if an underlying financial instrument defaults or experiences a similar credit event. The CDS may refer to a specified loan or bond obligation of a "reference entity", usually a corporation or government.


title: Credit default swap

text: As an example, imagine that an investor buys a CDS from AAA-Bank, where the reference entity is Risky Corp. The investor—the buyer of protection—will make regular payments to AAA-Bank—the seller of protection. "If" Risky Corp defaults on its debt, the investor receives a one-time payment from AAA-Bank, and the CDS contract is terminated.


title: Credit default swap

text: If the investor actually owns Risky Corp's debt (i.e., is owed money by Risky Corp), a CDS can act as a hedge. But investors can also buy CDS contracts referencing Risky Corp debt without actually owning any Risky Corp debt. This may be done for speculative purposes, to bet against the solvency of Risky Corp in a gamble to make money, or to hedge investments in other companies whose fortunes are expected to be similar to those of Risky Corp (see Uses).


title: Credit default swap

text: The "spread" of a CDS is the annual amount the protection buyer must pay the protection seller over the length of the contract, expressed as a percentage of the notional amount. For example, if the CDS spread of Risky Corp is 50 basis points, or 0.5% (1 basis point = 0.01%), then an investor buying $10 million worth of protection from AAA-Bank must pay the bank $50,000. Payments are usually made on a quarterly basis, in arrears. These payments continue until either the CDS contract expires or Risky Corp defaults.


title: Credit default swap

text: All things being equal, at any given time, if the maturity of two credit default swaps is the same, then the CDS associated with a company with a "higher" CDS spread is considered "more likely" to default by the market, since a higher fee is being charged to protect against this happening. However, factors such as liquidity and estimated loss given default can affect the comparison. Credit spread rates and credit ratings of the underlying or reference obligations are considered among money managers to be the best indicators of the likelihood of sellers of CDSs having to perform under these contracts.


title: Credit default swap

text: CDS contracts have obvious similarities with insurance contracts because the buyer pays a premium and, in return, receives a sum of money if an adverse event occurs.


title: Credit default swap

text: However, there are also many differences, the most important being that an insurance contract provides an indemnity against the losses "actually suffered" by the policy holder on an asset in which it holds an insurable interest. By contrast, a CDS provides an equal payout to all holders, calculated using an agreed, market-wide method. The holder does not need to own the underlying security and does not even have to suffer a loss from the default event. The CDS can therefore be used to speculate on debt objects.


title: Credit default swap

text: In the future, in the event that regulatory reforms require that CDS be traded and settled via a central exchange/clearing house, such as ICE TCC, there will no longer be "counterparty risk", as the risk of the counterparty will be held with the central exchange/clearing house.


title: Credit default swap

text: As is true with other forms of over-the-counter derivatives, CDS might involve liquidity risk. If one or both parties to a CDS contract must post collateral (which is common), there can be margin calls requiring the posting of additional collateral. The required collateral is agreed on by the parties when the CDS is first issued. This margin amount may vary over the life of the CDS contract, if the market price of the CDS contract changes, or the credit rating of one of the parties changes. Many CDS contracts even require payment of an upfront fee (composed of "reset to par" and an "initial coupon.").


title: Credit default swap

text: Another kind of risk for the seller of credit default swaps is jump risk or jump-to-default risk. A seller of a CDS could be collecting monthly premiums with little expectation that the reference entity may default. A default creates a sudden obligation on the protection sellers to pay millions, if not billions, of dollars to protection buyers. This risk is not present in other over-the-counter derivatives.


title: Credit default swap

text: Data about the credit default swaps market is available from three main sources. Data on an annual and semiannual basis is available from the International Swaps and Derivatives Association (ISDA) since 2001 and from the Bank for International Settlements (BIS) since 2004. The Depository Trust & Clearing Corporation (DTCC), through its global repository Trade Information Warehouse (TIW), provides weekly data but publicly available information goes back only one year. The numbers provided by each source do not always match because each provider uses different sampling methods. Daily, intraday and real time data is available from S&P Capital IQ through their acquisition of Credit Market Analysis in 2012.


title: Credit default swap

text: According to DTCC, the Trade Information Warehouse maintains the only "global electronic database for virtually all CDS contracts outstanding in the marketplace."


title: Credit default swap

text: The Office of the Comptroller of the Currency publishes quarterly credit derivative data about insured U.S commercial banks and trust companies.


title: Credit default swap

text: Credit default swaps allow investors to speculate on changes in CDS spreads of single names or of market indices such as the North American CDX index or the European iTraxx index. An investor might believe that an entity's CDS spreads are too high or too low, relative to the entity's bond yields, and attempt to profit from that view by entering into a trade, known as a basis trade, that combines a CDS with a cash bond and an interest rate swap.


title: Credit default swap

text: Finally, an investor might speculate on an entity's credit quality, since generally CDS spreads increase as credit-worthiness declines, and decline as credit-worthiness increases. The investor might therefore buy CDS protection on a company to speculate that it is about to default. Alternatively, the investor might sell protection if it thinks that the company's creditworthiness might improve. The investor selling the CDS is viewed as being "long" on the CDS and the credit, as if the investor owned the bond. In contrast, the investor who bought protection is "short" on the CDS and the underlying credit.


title: Credit default swap

text: Credit default swaps opened up important new avenues to speculators. Investors could go long on a bond without any upfront cost of buying a bond; all the investor need do was promise to pay in the event of default. Shorting a bond faced difficult practical problems, such that shorting was often not feasible; CDS made shorting credit possible and popular. Because the speculator in either case does not own the bond, its position is said to be a synthetic long or short position.


title: Credit default swap

text: For example, a hedge fund believes that Risky Corp will soon default on its debt. Therefore, it buys $10 million worth of CDS protection for two years from AAA-Bank, with Risky Corp as the reference entity, at a spread of 500 basis points (=5%) per annum.


title: Credit default swap

text: Note that there is a third possibility in the above scenario; the hedge fund could decide to liquidate its position after a certain period of time in an attempt to realise its gains or losses. For example:


title: Credit default swap

text: Transactions such as these do not even have to be entered into over the long-term. If Risky Corp's CDS spread had widened by just a couple of basis points over the course of one day, the hedge fund could have entered into an offsetting contract immediately and made a small profit over the life of the two CDS contracts.


title: Credit default swap

text: Credit default swaps are also used to structure synthetic collateralized debt obligations (CDOs). Instead of owning bonds or loans, a synthetic CDO gets credit exposure to a portfolio of fixed income assets without owning those assets through the use of CDS. CDOs are viewed as complex and opaque financial instruments. An example of a synthetic CDO is Abacus 2007-AC1, which is the subject of the civil suit for fraud brought by the SEC against Goldman Sachs in April 2010. Abacus is a synthetic CDO consisting of credit default swaps referencing a variety of mortgage-backed securities.


title: Credit default swap

text: In the examples above, the hedge fund did not own any debt of Risky Corp. A CDS in which the buyer does not own the underlying debt is referred to as a "naked credit default swap", estimated to be up to 80% of the credit default swap market. There is currently a debate in the United States and Europe about whether speculative uses of credit default swaps should be banned. Legislation is under consideration by Congress as part of financial reform.


title: Credit default swap

text: Critics assert that naked CDSs should be banned, comparing them to buying fire insurance on your neighbor's house, which creates a huge incentive for arson. Analogizing to the concept of insurable interest, critics say you should not be able to buy a CDS—insurance against default—when you do not own the bond. Short selling is also viewed as gambling and the CDS market as a casino.


title: Credit default swap

text: Another concern is the size of the CDS market. Because naked credit default swaps are synthetic, there is no limit to how many can be sold. The gross amount of CDSs far exceeds all "real" corporate bonds and loans outstanding. As a result, the risk of default is magnified leading to concerns about systemic risk.


title: Credit default swap

text: Financier George Soros called for an outright ban on naked credit default swaps, viewing them as "toxic" and allowing speculators to bet against and "bear raid" companies or countries. His concerns were echoed by several European politicians who, during the Greek Financial Crisis, accused naked CDS buyers of making the crisis worse.


title: Credit default swap

text: Despite these concerns, former United States Secretary of the Treasury Geithner and Commodity Futures Trading Commission Chairman Gensler are not in favor of an outright ban on naked credit default swaps. They prefer greater transparency and better capitalization requirements. These officials think that naked CDSs have a place in the market.


title: Credit default swap

text: Proponents of naked credit default swaps say that short selling in various forms, whether credit default swaps, options or futures, has the beneficial effect of increasing liquidity in the marketplace. That benefits hedging activities. Without speculators buying and selling naked CDSs, banks wanting to hedge might not find a ready seller of protection. Speculators also create a more competitive marketplace, keeping prices down for hedgers. A robust market in credit default swaps can also serve as a barometer to regulators and investors about the credit health of a company or country.


title: Credit default swap

text: Despite assertions that speculators are making the Greek crisis worse, Germany's market regulator BaFin found no proof supporting the claim. Some suggest that without credit default swaps, Greece's borrowing costs would be higher. As of November 2011, the Greek bonds have a bond yield of 28%.


title: Credit default swap

text: A bill in the U.S. Congress proposed giving a public authority the power to limit the use of CDSs other than for hedging purposes, but the bill did not become law.


title: Credit default swap

text: Credit default swaps are often used to manage the risk of default that arises from holding debt. A bank, for example, may hedge its risk that a borrower may default on a loan by entering into a CDS contract as the buyer of protection. If the loan goes into default, the proceeds from the CDS contract cancel out the losses on the underlying debt.


title: Credit default swap

text: There are other ways to eliminate or reduce the risk of default. The bank could sell (that is, assign) the loan outright or bring in other banks as participants. However, these options may not meet the bank's needs. Consent of the corporate borrower is often required. The bank may not want to incur the time and cost to find loan participants.


title: Credit default swap

text: If both the borrower and lender are well-known and the market (or even worse, the news media) learns that the bank is selling the loan, then the sale may be viewed as signaling a lack of trust in the borrower, which could severely damage the banker-client relationship. In addition, the bank simply may not want to sell or share the potential profits from the loan. By buying a credit default swap, the bank can lay off default risk while still keeping the loan in its portfolio. The downside to this hedge is that without default risk, a bank may have no motivation to actively monitor the loan and the counterparty has no relationship to the borrower.


title: Credit default swap

text: Another kind of hedge is against concentration risk. A bank's risk management team may advise that the bank is overly concentrated with a particular borrower or industry. The bank can lay off some of this risk by buying a CDS. Because the borrower—the reference entity—is not a party to a credit default swap, entering into a CDS allows the bank to achieve its diversity objectives without impacting its loan portfolio or customer relations. Similarly, a bank selling a CDS can diversify its portfolio by gaining exposure to an industry in which the selling bank has no customer base.


title: Credit default swap

text: A bank buying protection can also use a CDS to free regulatory capital. By offloading a particular credit risk, a bank is not required to hold as much capital in reserve against the risk of default (traditionally 8% of the total loan under Basel I). This frees resources the bank can use to make other loans to the same key customer or to other borrowers.


title: Credit default swap

text: Hedging risk is not limited to banks as lenders. Holders of corporate bonds, such as banks, pension funds or insurance companies, may buy a CDS as a hedge for similar reasons.


title: Credit default swap

text: Pension fund example: A pension fund owns five-year bonds issued by Risky Corp with par value of $10 million. To manage the risk of losing money if Risky Corp defaults on its debt, the pension fund buys a CDS from Derivative Bank in a notional amount of $10 million. The CDS trades at 200 basis points (200 basis points = 2.00 percent). In return for this credit protection, the pension fund pays 2% of $10 million ($200,000) per annum in quarterly installments of $50,000 to Derivative Bank.


title: Credit default swap

text: In addition to financial institutions, large suppliers can use a credit default swap on a public bond issue or a basket of similar risks as a proxy for its own credit risk exposure on receivables.


title: Credit default swap

text: Although credit default swaps have been highly criticized for their role in the recent financial crisis, most observers conclude that using credit default swaps as a hedging device has a useful purpose.


title: Credit default swap

text: "Capital Structure Arbitrage" is an example of an arbitrage strategy that uses CDS transactions. This technique relies on the fact that a company's stock price and its CDS spread should exhibit negative correlation; i.e., if the outlook for a company improves then its share price should go up and its CDS spread should tighten, since it is less likely to default on its debt. However, if its outlook worsens then its CDS spread should widen and its stock price should fall.


title: Credit default swap

text: Techniques reliant on this are known as capital structure arbitrage because they exploit market inefficiencies between different parts of the same company's capital structure; i.e., mis-pricings between a company's debt and equity. An arbitrageur attempts to exploit the "spread" between a company's CDS and its equity in certain situations.


title: Credit default swap

text: For example, if a company has announced some bad news and its share price has dropped by 25%, but its CDS spread has remained unchanged, then an investor might expect the CDS spread to increase relative to the share price. Therefore, a basic strategy would be to go long on the CDS spread (by buying CDS protection) while simultaneously hedging oneself by buying the underlying stock. This technique would benefit in the event of the CDS spread widening relative to the equity price, but would lose money if the company's CDS spread tightened relative to its equity.


title: Credit default swap

text: An interesting situation in which the inverse correlation between a company's stock price and CDS spread breaks down is during a Leveraged buyout (LBO). Frequently this leads to the company's CDS spread widening due to the extra debt that will soon be put on the company's books, but also an "increase" in its share price, since buyers of a company usually end up paying a premium.


title: Credit default swap

text: Another common arbitrage strategy aims to exploit the fact that the swap-adjusted spread of a CDS should trade closely with that of the underlying cash bond issued by the reference entity. Misalignment in spreads may occur due to technical reasons such as:


title: Credit default swap

text: The difference between CDS spreads and asset swap spreads is called the "basis" and should theoretically be close to zero. Basis trades attempt to exploit this difference to make a profit, however hedging a bond with a CDS does have irreducible risks which should be considered when making basis trades.


title: Credit default swap

text: Forms of credit default swaps had been in existence from at least the early 1990s, with early trades carried out by Bankers Trust in 1991. J.P. Morgan & Co. and economist Blythe Masters are widely credited with creating the modern credit default swap in 1994. In that instance, J.P. Morgan had extended a $4.8 billion credit line to Exxon, which faced the threat of $5 billion in punitive damages for the Exxon Valdez oil spill. A team of J.P. Morgan bankers led by Masters then sold the credit risk from the credit line to the European Bank of Reconstruction and Development in order to cut the reserves that J.P. Morgan was required to hold against Exxon's default, thus improving its own balance sheet.


title: Credit default swap

text: Despite early successes, credit default swaps could not be profitable until an industrialized and streamlined process was created to issue them. This changed when CDS's began to be traded as securities from JPMorgan, an effort led by Bill Demchak where he and his team created bundles of swaps and sold them to investors. The investors would get the streams of revenue, according to the risk-and-reward level they chose; the bank would get insurance against its loans, and fees for setting up the deal.


title: Credit default swap

text: In 1997, JPMorgan developed a proprietary product called BISTRO (Broad Index Securitized Trust Offering) that used CDS to clean up a bank's balance sheet. The advantage of BISTRO was that it used securitization to split up the credit risk into little pieces that smaller investors found more digestible, since most investors lacked EBRD's capability to accept $4.8 billion in credit risk all at once. BISTRO was the first example of what later became known as synthetic collateralized debt obligations (CDOs). There were two Bistros in 1997 for approximately $10 billion each.


title: Credit default swap

text: Mindful of the concentration of default risk as one of the causes of the S&L crisis, regulators initially found CDS's ability to disperse default risk attractive.


title: Credit default swap

text: In 2000, credit default swaps became largely exempt from regulation by both the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The Commodity Futures Modernization Act of 2000, which was also responsible for the Enron loophole, specifically stated that CDSs are neither futures nor securities and so are outside the remit of the SEC and CFTC.


title: Credit default swap

text: At first, banks were the dominant players in the market, as CDS were primarily used to hedge risk in connection with their lending activities. Banks also saw an opportunity to free up regulatory capital. By March 1998, the global market for CDS was estimated at $300 billion, with JP Morgan alone accounting for about $50 billion of this.


title: Credit default swap

text: The high market share enjoyed by the banks was soon eroded as more and more asset managers and hedge funds saw trading opportunities in credit default swaps. By 2002, investors as speculators, rather than banks as hedgers, dominated the market.


title: Credit default swap

text: National banks in the USA used credit default swaps as early as 1996. In that year, the Office of the Comptroller of the Currency measured the size of the market as tens of billions of dollars. Six years later, by year-end 2002, the outstanding amount was over $2 trillion.


title: Credit default swap

text: Although speculators fueled the exponential growth, other factors also played a part. An extended market could not emerge until 1999, when ISDA standardized the documentation for credit default swaps. Also, the 1997 Asian Financial Crisis spurred a market for CDS in emerging market sovereign debt. In addition, in 2004, index trading began on a large scale and grew rapidly.


title: Credit default swap

text: The market size for Credit Default Swaps more than doubled in size each year from $3.7 trillion in 2003. By the end of 2007, the CDS market had a notional value of $62.2 trillion. But notional amount fell during 2008 as a result of dealer "portfolio compression" efforts (replacing offsetting redundant contracts), and by the end of 2008 notional amount outstanding had fallen 38 percent to $38.6 trillion.


title: Credit default swap

text: Explosive growth was not without operational headaches. On September 15, 2005, the New York Fed summoned 14 banks to its offices. Billions of dollars of CDS were traded daily but the record keeping was more than two weeks behind. This created severe risk management issues, as counterparties were in legal and financial limbo. U.K. authorities expressed the same concerns.


title: Credit default swap

text: Since default is a relatively rare occurrence (historically around 0.2% of investment grade companies default in any one year), in most CDS contracts the only payments are the premium payments from buyer to seller. Thus, although the above figures for outstanding notionals are very large, in the absence of default the net cash flows are only a small fraction of this total: for a 100 bp = 1% spread, the annual cash flows are only 1% of the notional amount.


title: Credit default swap

text: The market for Credit Default Swaps attracted considerable concern from regulators after a number of large scale incidents in 2008, starting with the collapse of Bear Stearns.


title: Credit default swap

text: In the days and weeks leading up to Bear's collapse, the bank's CDS spread widened dramatically, indicating a surge of buyers taking out protection on the bank. It has been suggested that this widening was responsible for the perception that Bear Stearns was vulnerable, and therefore restricted its access to wholesale capital, which eventually led to its forced sale to JP Morgan in March. An alternative view is that this surge in CDS protection buyers was a "symptom" rather than a "cause" of Bear's collapse; i.e., investors saw that Bear was in trouble, and sought to hedge any naked exposure to the bank, or speculate on its collapse.


title: Credit default swap

text: In September, the bankruptcy of Lehman Brothers caused a total close to $400 billion to become payable to the buyers of CDS protection referenced against the insolvent bank. However the net amount that changed hands was around $7.2 billion. This difference is due to the process of 'netting'. Market participants co-operated so that CDS sellers were allowed to deduct from their payouts the inbound funds due to them from their hedging positions. Dealers generally attempt to remain risk-neutral, so that their losses and gains after big events offset each other.


title: Credit default swap

text: Also in September American International Group (AIG) required an $85 billion federal loan because it had been excessively selling CDS protection without hedging against the possibility that the reference entities might decline in value, which exposed the insurance giant to potential losses over $100 billion. The CDS on Lehman were settled smoothly, as was largely the case for the other 11 credit events occurring in 2008 that triggered payouts. And while it is arguable that other incidents would have been as bad or worse if less efficient instruments than CDS had been used for speculation and insurance purposes, the closing months of 2008 saw regulators working hard to reduce the risk involved in CDS transactions.


title: Credit default swap

text: In 2008 there was no centralized exchange or clearing house for CDS transactions; they were all done over the counter (OTC). This led to recent calls for the market to open up in terms of transparency and regulation.


title: Credit default swap

text: In November 2008 the Depository Trust & Clearing Corporation (DTCC), which runs a warehouse for CDS trade confirmations accounting for around 90% of the total market, announced that it will release market data on the outstanding notional of CDS trades on a weekly basis. The data can be accessed on the DTCC's website here:


title: Credit default swap

text: By 2010, Intercontinental Exchange, through its subsidiaries, ICE Trust in New York, launched in 2008, and ICE Clear Europe Limited in London, UK, launched in July 2009, clearing entities for credit default swaps (CDS) had cleared more than $10 trillion in credit default swaps (CDS) (Terhune Bloomberg Business Week 2010-07-29). Bloomberg's Terhune (2010) explained how investors seeking high-margin returns use Credit Default Swaps (CDS) to bet against financial instruments owned by other companies and countries. Intercontinental's clearing houses guarantee every transaction between buyer and seller providing a much-needed safety net reducing the impact of a default by spreading the risk. ICE collects on every trade.(Terhune Bloomberg Business Week 2010-07-29). Brookings senior research fellow, Robert E. Litan, cautioned however, "valuable pricing data will not be fully reported, leaving ICE's institutional partners with a huge informational advantage over other traders. He calls ICE Trust "a derivatives dealers' club" in which members make money at the expense of nonmembers (Terhune citing Litan in Bloomberg Business Week 2010-07-29). (Litan Derivatives Dealers’ Club 2010)." Actually, Litan conceded that "some limited progress toward central clearing of CDS has been made in recent months, with CDS contracts between dealers now being cleared centrally primarily through one clearinghouse (ICE Trust) in which the dealers have a significant financial interest (Litan 2010:6)." However, "as long as ICE Trust has a monopoly in clearing, watch for the dealers to limit the expansion of the products that are centrally cleared, and to create barriers to electronic trading and smaller dealers making competitive markets in cleared products (Litan 2010:8)."


title: Credit default swap

text: In 2009 the U.S. Securities and Exchange Commission granted an exemption for Intercontinental Exchange to begin guaranteeing credit-default swaps. The SEC exemption represented the last regulatory approval needed by Atlanta-based Intercontinental. A derivatives analyst at Morgan Stanley, one of the backers for IntercontinentalExchange's subsidiary, ICE Trust in New York, launched in 2008, claimed that the "clearinghouse, and changes to the contracts to standardize them, will probably boost activity". IntercontinentalExchange's subsidiary, ICE Trust's larger competitor, CME Group Inc., hasn't received an SEC exemption, and agency spokesman John Nester said he didn't know when a decision would be made.


title: Credit default swap

text: The early months of 2009 saw several fundamental changes to the way CDSs operate, resulting from concerns over the instruments' safety after the events of the previous year. According to Deutsche Bank managing director Athanassios Diplas "the industry pushed through 10 years worth of changes in just a few months".


title: Credit default swap

text: By late 2008 processes had been introduced allowing CDSs that offset each other to be cancelled. Along with termination of contracts that have recently paid out such as those based on Lehmans, this had by March reduced the face value of the market down to an estimated $30 trillion.


title: Credit default swap

text: The Bank for International Settlements estimates that outstanding derivatives total $708 trillion. U.S. and European regulators are developing separate plans to stabilize the derivatives market. Additionally there are some globally agreed standards falling into place in March 2009, administered by International Swaps and Derivatives Association (ISDA). Two of the key changes are:


title: Credit default swap

text: 1. The introduction of central clearing houses, one for the US and one for Europe. A clearing house acts as the central counterparty to both sides of a CDS transaction, thereby reducing the counterparty risk that both buyer and seller face.


title: Credit default swap

text: 2. The international standardization of CDS contracts, to prevent legal disputes in ambiguous cases where what the payout should be is unclear.


title: Credit default swap

text: Speaking before the changes went live, Sivan Mahadevan, a derivatives analyst at Morgan Stanley, one of the backers for IntercontinentalExchange's subsidiary, ICE Trust in New York, launched in 2008, claimed that


title: Credit default swap

text: In the U.S., central clearing operations began in March 2009, operated by InterContinental Exchange (ICE). A key competitor also interested in entering the CDS clearing sector is CME Group.


title: Credit default swap

text: In Europe, CDS Index clearing was launched by IntercontinentalExchange's European subsidiary ICE Clear Europe on July 31, 2009. It launched Single Name clearing in Dec 2009. By the end of 2009, it had cleared CDS contracts worth EUR 885 billion reducing the open interest down to EUR 75 billion


title: Credit default swap

text: By the end of 2009, banks had reclaimed much of their market share; hedge funds had largely retreated from the market after the crises. According to an estimate by the Banque de France, by late 2009 the bank JP Morgan alone now had about 30% of the global CDS market.


title: Credit default swap

text: The SEC's approval for ICE Futures' request to be exempted from rules that would prevent it clearing CDSs was the third government action granted to Intercontinental in one week. On March 3, its proposed acquisition of Clearing Corp., a Chicago clearinghouse owned by eight of the largest dealers in the credit-default swap market, was approved by the Federal Trade Commission and the Justice Department. On March 5, 2009, the Federal Reserve Board, which oversees the clearinghouse, granted a request for ICE to begin clearing.


title: Credit default swap

text: Clearing Corp. shareholders including JPMorgan Chase & Co., Goldman Sachs Group Inc. and UBS AG, received $39 million in cash from Intercontinental in the acquisition, as well as the Clearing Corp.’s cash on hand and a 50–50 profit-sharing agreement with Intercontinental on the revenue generated from processing the swaps.


title: Credit default swap

text: Other proposals to clear credit-default swaps have been made by NYSE Euronext, Eurex AG and LCH.Clearnet Ltd. Only the NYSE effort is available now for clearing after starting on Dec. 22. As of Jan. 30, no swaps had been cleared by the NYSE’s London- based derivatives exchange, according to NYSE Chief Executive Officer Duncan Niederauer.


title: Credit default swap

text: Members of the Intercontinental clearinghouse ICE Trust (now ICE Clear Credit) in March 2009 would have to have a net worth of at least $5 billion and a credit rating of A or better to clear their credit-default swap trades. Intercontinental said in the statement today that all market participants such as hedge funds, banks or other institutions are open to become members of the clearinghouse as long as they meet these requirements.


title: Credit default swap

text: A clearinghouse acts as the buyer to every seller and seller to every buyer, reducing the risk of counterparty defaulting on a transaction. In the over-the-counter market, where credit- default swaps are currently traded, participants are exposed to each other in case of a default. A clearinghouse also provides one location for regulators to view traders’ positions and prices.


title: Credit default swap

text: In April 2012, hedge fund insiders became aware that the market in credit default swaps was possibly being affected by the activities of Bruno Iksil, a trader at J.P. Morgan Chief Investment Office (CIO), referred to as "the London whale" in reference to the huge positions he was taking. Heavy opposing bets to his positions are known to have been made by traders, including another branch of J.P. Morgan, who purchased the derivatives offered by J.P. Morgan in such high volume. Major losses, $2 billion, were reported by the firm in May 2012 in relationship to these trades. The disclosure, which resulted in headlines in the media, did not disclose the exact nature of the trading involved, which remains in progress. The item traded, possibly related to CDX IG 9, an index based on the default risk of major U.S. corporations, has been described as a "derivative of a derivative".


title: Credit default swap

text: A CDS contract is typically documented under a "confirmation" referencing the credit derivatives definitions as published by the International Swaps and Derivatives Association. The confirmation typically specifies a "reference entity", a corporation or sovereign that generally, although not always, has debt outstanding, and a "reference obligation", usually an unsubordinated corporate bond or government bond. The period over which default protection extends is defined by the contract "effective date" and "scheduled termination date".


title: Credit default swap

text: The confirmation also specifies a "calculation agent" who is responsible for making determinations as to "successors" and "substitute reference obligations" (for example necessary if the original reference obligation was a loan that is repaid before the expiry of the contract), and for performing various calculation and administrative functions in connection with the transaction. By market convention, in contracts between CDS dealers and end-users, the dealer is generally the calculation agent, and in contracts between CDS dealers, the protection seller is generally the calculation agent.


title: Credit default swap

text: It is not the responsibility of the calculation agent to determine whether or not a credit event has occurred but rather a matter of fact that, pursuant to the terms of typical contracts, must be supported by "publicly available information" delivered along with a "credit event notice". Typical CDS contracts do not provide an internal mechanism for challenging the occurrence or non-occurrence of a credit event and rather leave the matter to the courts if necessary, though actual instances of specific events being disputed are relatively rare.


title: Credit default swap

text: CDS confirmations also specify the "credit events" that will give rise to payment obligations by the protection seller and delivery obligations by the protection buyer. Typical credit events include "bankruptcy" with respect to the reference entity and "failure to pay" with respect to its direct or guaranteed bond or loan debt. CDS written on North American investment grade corporate reference entities, European corporate reference entities and sovereigns generally also include "restructuring" as a credit event, whereas trades referencing North American high-yield corporate reference entities typically do not.


title: Credit default swap

text: Finally, standard CDS contracts specify "deliverable obligation characteristics" that limit the range of obligations that a protection buyer may deliver upon a credit event. Trading conventions for deliverable obligation characteristics vary for different markets and CDS contract types. Typical limitations include that deliverable debt be a bond or loan, that it have a maximum maturity of 30 years, that it not be subordinated, that it not be subject to transfer restrictions (other than Rule 144A), that it be of a standard currency and that it not be subject to some contingency before becoming due.


title: Credit default swap

text: The premium payments are generally quarterly, with maturity dates (and likewise premium payment dates) falling on March 20, June 20, September 20, and December 20. Due to the proximity to the IMM dates, which fall on the third Wednesday of these months, these CDS maturity dates are also referred to as "IMM dates".


title: Credit default swap

text: The European sovereign debt crisis resulted from a combination of complex factors, including the globalisation of finance; easy credit conditions during the 2002–2008 period that encouraged high-risk lending and borrowing practices; the 2007–2012 global financial crisis; international trade imbalances; real-estate bubbles that have since burst; the 2008–2012 global recession; fiscal policy choices related to government revenues and expenses; and approaches used by nations to bail out troubled banking industries and private bondholders, assuming private debt burdens or socialising losses.


title: Credit default swap

text: Since December 1, 2011 the European Parliament has banned naked Credit default swap (CDS) on the debt for sovereign nations.


title: Credit default swap

text: The definition of restructuring is quite technical but is essentially intended to respond to circumstances where a reference entity, as a result of the deterioration of its credit, negotiates changes in the terms in its debt with its creditors as an alternative to formal insolvency proceedings (i.e. the debt is "restructured"). During the 2012 Greek sovereign debt crisis, one important issue was whether the restructuring would trigger Credit default swap (CDS) payments. European Central Bank and the International Monetary Fund negotiators avoided these triggers as they could have jeopardized the stability of major European banks who had been protection writers. An alternative could have been to create new CDS which clearly would pay in the event of debt restructuring. The market would have paid the spread between these and old (potentially more ambiguous) CDS. This practice is far more typical in jurisdictions that do not provide protective status to insolvent debtors similar to that provided by Chapter 11 of the United States Bankruptcy Code. In particular, concerns arising out of Conseco's restructuring in 2000 led to the credit event's removal from North American high yield trades.


title: Credit default swap

text: As described in an earlier section, if a credit event occurs then CDS contracts can either be "physically settled" or "cash settled".


title: Credit default swap

text: The development and growth of the CDS market has meant that on many companies there is now a much larger outstanding notional of CDS contracts than the outstanding notional value of its debt obligations. (This is because many parties made CDS contracts for speculative purposes, without actually owning any debt that they wanted to insure against default. See "naked" CDS) For example, at the time it filed for bankruptcy on September 14, 2008, Lehman Brothers had approximately $155 billion of outstanding debt but around $400 billion notional value of CDS contracts had been written that referenced this debt. Clearly not all of these contracts could be physically settled, since there was not enough outstanding Lehman Brothers debt to fulfill all of the contracts, demonstrating the necessity for cash settled CDS trades. The trade confirmation produced when a CDS is traded states whether the contract is to be physically or cash settled.


title: Credit default swap

text: When a credit event occurs on a major company on which a lot of CDS contracts are written, an auction (also known as a "credit-fixing event") may be held to facilitate settlement of a large number of contracts at once, at a fixed cash settlement price. During the auction process participating dealers (e.g., the big investment banks) submit prices at which they would buy and sell the reference entity's debt obligations, as well as net requests for physical settlement against par. A second stage Dutch auction is held following the publication of the initial midpoint of the dealer markets and what is the net open interest to deliver or be delivered actual bonds or loans. The final clearing point of this auction sets the final price for cash settlement of all CDS contracts and all physical settlement requests as well as matched limit offers resulting from the auction are actually settled. According to the International Swaps and Derivatives Association (ISDA), who organised them, auctions have recently proved an effective way of settling the very large volume of outstanding CDS contracts written on companies such as Lehman Brothers and Washington Mutual. Commentator Felix Salmon, however, has questioned in advance ISDA's ability to structure an auction, as defined to date, to set compensation associated with a 2012 bond swap in Greek government debt. For its part, ISDA in the leadup to a 50% or greater "haircut" for Greek bondholders, issued an opinion that the bond swap would not constitute a default event.


title: Credit default swap

text: There are two competing theories usually advanced for the pricing of credit default swaps. The first, referred to herein as the 'probability model', takes the present value of a series of cashflows weighted by their probability of non-default. This method suggests that credit default swaps should trade at a considerably lower spread than corporate bonds.


title: Credit default swap

text: The second model, proposed by Darrell Duffie, but also by John Hull and Alan White, uses a no-arbitrage approach.


title: Credit default swap

text: Under the probability model, a credit default swap is priced using a model that takes four inputs; this is similar to the rNPV (risk-adjusted NPV) model used in drug development:


title: Credit default swap

text: If default events never occurred the price of a CDS would simply be the sum of the discounted premium payments. So CDS pricing models have to take into account the possibility of a default occurring some time between the effective date and maturity date of the CDS contract. For the purpose of explanation we can imagine the case of a one-year CDS with effective date formula_1 with four quarterly premium payments occurring at times formula_2, formula_3, formula_4, and formula_5. If the nominal for the CDS is formula_6 and the issue premium is formula_7 then the size of the quarterly premium payments is formula_8. If we assume for simplicity that defaults can only occur on one of the payment dates then there are five ways the contract could end:


title: Credit default swap

text: To price the CDS we now need to assign probabilities to the five possible outcomes, then calculate the present value of the payoff for each outcome. The present value of the CDS is then simply the present value of the five payoffs multiplied by their probability of occurring.


title: Credit default swap

text: This is illustrated in the following tree diagram where at each payment date either the contract has a default event, in which case it ends with a payment of formula_9 shown in red, where formula_10 is the recovery rate, or it survives without a default being triggered, in which case a premium payment of formula_8 is made, shown in blue. At either side of the diagram are the cashflows up to that point in time with premium payments in blue and default payments in red. If the contract is terminated the square is shown with solid shading.


title: Credit default swap

text: The probability of surviving over the interval formula_12 to formula_13 without a default payment is formula_14 and the probability of a default being triggered is formula_15. The calculation of present value, given discount factor of formula_16 to formula_17 is then


title: Credit default swap

text: The probabilities formula_18, formula_19, formula_20, formula_21 can be calculated using the credit spread curve. The probability of no default occurring over a time period from formula_22 to formula_23 decays exponentially with a time-constant determined by the credit spread, or mathematically formula_24 where formula_25 is the credit spread zero curve at time formula_22. The riskier the reference entity the greater the spread and the more rapidly the survival probability decays with time.


title: Credit default swap

text: To get the total present value of the credit default swap we multiply the probability of each outcome by its present value to give