Credit Default Swap

  • It is an example of a credit derivative transaction where credit protection is bought and sold.
  • In a Credit Default Swap (CDS), one party agrees to pay another party periodic fixed payments in exchange for receiving ‘credit event protection’, in the form of a payment, in the event that a third party or its obligations are subject to one or more pre-agreed adverse credit events over a pre-agreed time period.
  • Typical credit events include bankruptcy, failure to pay, obligation acceleration, restructuring, and ....
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