A swap designed to transfer the credit Risk of fixed income securities between parties
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Tuesday, August 4, 2009
CDS
A swap designed to transfer the credit Risk of fixed income securities between parties
A credit default swap (CDS) is a contract between two parties where a protection buyer pays a premium to the protection seller in exchange for a payment if a credit event occurs to a reference entity.
A credit default swap (CDS) is a swap contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if a credit instrument -- typically a bond or loan -- goes into default (fails to pay).
CDS are typically 5 year contracts, although 3, 7, and 10 year contracts are also traded.
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