Since credit derivatives are private contracts, it is difficult to calculate the size of the market with any accuracy. The task is also complicated by the different ways volumes are measured, problems of double-counting, and doubts about whether or not certain products should be considered as credit derivatives.
As a result, estimates of the size of the market vary greatly. But all the various surveys on the size of the market agree that volumes have grown very rapidly since the beginning of the current century.
The International Swaps and Derivatives Association (Isda), the trade association for dealers and users of over-the-counter derivatives, carries out a twice-yearly survey of the size of the market. It asks its members to calculate the total notional amount of all the derivatives they have outstanding. (In 2006, 86 firms provided information on their credit derivative positions, indicating that most big market participants are included in the survey.)
According to Isda, the total face value of all outstanding credit derivatives at the end of 2005 was $17.3 trillion. That is a 27-fold increase on the $631 billion figure at the end of June 2001, when Isda first surveyed its members on their credit derivative positions (see table opposite). Even so, credit derivatives are still only a small part of the total derivatives market. According to the same Isda survey, the total of all outstanding over-the-counter derivatives was $236 trillion, with interest rate derivatives taking the lion’s share of that total.
According to the Bank for International Settlements (BIS), the Basel-based central banks’ organisation, the total volume of outstanding credit derivatives at the end of 2005 stood at $13.7 trillion. These figures are based on data submitted by banks in the G10 group of largest economies to their central banks.