Spreading the Risk of Default

Credit risk derivatives, invented in the 1990s, have been soaring in popularity over the last few years, thanks to uncertain economic times around the world. CRDs are "investment products based on the probabilities that a company or country will default on its creditors or, more generally, experience a change in its credit rating," according to this article in Stanford Business, an online magazine. The CRD market has been growing 50 to 100 percent annually since 2001, and is expected to cover up to some $4 billion in corporate and sovereign by the end of 2004. This article is a good intro into how CRDs work, who buys them, and who sells them.