... of credit derivatives provides solutions to both of theforegoing problems. By allowing banks to take a short credit position, credit deriva-tives enable banks to hedge their exposure to credit ... discovery.Another benefit of credit derivatives is that they add transparency to credit mar-kets (Kroszner 2007). Prior to the existence of credit derivatives, determining a pricefor credit risk was difficult, ... and Costs of Credit DerivativesBenefits. Credit derivatives emerged in response to two long-standing problems inbanking. First, lending operated under the handicap that hedging credit risk was...