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Hi David,

The buyer of a credit-linked note (CLN) assumes what risks? - in the answers you have mentioned that buyer does not assume market risk. But I thought this should be a risk as change in interest rates will actually impact the pv of the value that buyer receives in any of the scenarios. Kindly explain. Thanks


David Harper CFA FRM

David Harper CFA FRM
Staff member
Per de Servigny, CLN buyer incurs credit deterioriation, credit default, counterparty and correlation risk. I see your point that the CLN buyer is exposed the market risk (interest rate changes) but both the CLN issuer and CLN buyer are. The de Servigny issue concerns the transfer and hedging of risks; in this context, the CLN is best seen as a funded CDS which transfers credit risk.