Often billed as the root cause of the credit crisis, credit derivatives might be better described as Wall Street’s most misunderstood child.

The first credit default swap was written by Bankers Trust in 1993 as a means of laying off its own credit risk exposure to the Japanese housing sector. By the late 1990s several banks were involved, and by 2001 the market was worth $631bn. In the ensuing years it mushroomed; by 2005 it was worth $12 trillion and was accounting for a large amount of income for investment banks.