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Eurex to use Bloomberg calculation model to price credit index futures

International derivatives exchange Eurex will use a new Bloomberg model to calculate the final settlement prices of its new credit index future to be launched next Tuesday, March 27, with prices displayed and capable of being analysed on the Bloomberg Professional service.

Bloomberg, a leading global provider of analytics, news and data to the financial industry, is the leading analytical system in the credit derivatives realm and launched its own proprietary calculation model for single name credit default swaps and CDS indices and options in January.

The model developed by Bloomberg's team of quantitative analysts enables highly precise price determination for CDS and similar instruments. It can be selected on CDSW, the single name and index pricing tool, under Models, and is the pricing engine behind the new function FCDS <GO>, which will be available as of March 27.

Peter Reitz, a member of the Eurex executive board, says: 'Incorporating the Bloomberg CDS pricing model in our calculation of settlement prices will increase the transparency of our product. At the same time we will benefit from Bloomberg's distribution to a worldwide customer base.'

The planned Eurex credit derivatives will be a future based on the iTraxx Europe 5 year index series. The iTraxx Europe index is an equally weighted portfolio of the 125 most liquid European investment grade credit default swap entities. Credit derivatives offer market participants the opportunity to hedge against credit events such as corporate defaults, failure to pay or restructuring.

The global credit derivatives market has been growing exponentially over the past 10 years, from approximately USD1trn in 1996 to more than USD20trn last year. Listing credit derivatives will improve operational efficiency and risk management for existing credit market participants.

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