Credit Default Swap - CDS

A swap designed to transfer the credit exposure of fixed income products between parties. A credit default swap is also referred to as a credit derivative contract, where the purchaser of the swap makes payments up until the maturity date of a contract. Payments are made to the seller of the swap. In return, the seller agrees to pay off a third party debt if this party defaults on the loan. A CDS is considered insurance against non-payment. A buyer of a CDS might be speculating on the possibility that the third party will indeed default.

The buyer of a credit default swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the debt security. In doing so, the risk of default is transferred from the holder of the fixed income security to the seller of the swap. For example, the buyer of a credit default swap will be entitled to the par value of the contract by the seller of the swap, should the third party default on payments. By purchasing a swap, the buyer is transferring the risk that a debt security will default.


Investment dictionary. . 2012.

Look at other dictionaries:

  • credit default swap — UK US noun [C] (also credit swap) ► FINANCE a type of credit derivative in which the buyer pays the seller for the right to get money back if a particular loan, bond, etc. is not paid back: »The cornerstone of the credit derivatives market is the …   Financial and business terms

  • CREDIT DEFAULT SWAP — См. ДЕФОЛТНЫЙ СВОП Словарь бизнес терминов. Академик.ру. 2001 …   Словарь бизнес-терминов

  • credit default swap — UK / US noun [countable] Word forms credit default swap : singular credit default swap plural credit default swaps economics a financial instrument for protecting against the risk that a company or organization will not pay money that they owe.… …   English dictionary

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  • Asset Backed Credit Default Swap - ABCDS — A redit default swap wherein the reference asset is an asset backed security rather than a corporate credit instrument. The buyer of an asset backed credit default swap (ABCDS) is buying protection for defaults on asset backed securities or… …   Investment dictionary

  • credit default swaption — An option to enter into a credit default swap. Practical Law Dictionary. Glossary of UK, US and international legal terms. www.practicallaw.com. 2010 …   Law dictionary

  • Credit Default Insurance — The use of a financial agreement usually a credit derivative such as a credit default swap, total return swap, or credit linked note to mitigate the risk of loss from default by a borrower or bond issuer. Credit default insurance allows for the… …   Investment dictionary

  • credit default option — noun A put option that makes a payoff in the event the issuer of a specified reference asset defaults. Syn: default option, credit default swap …   Wiktionary

  • credit default swaps — See credit swap. American Banker Glossary …   Financial and business terms

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