Credit Derivative

Privately held negotiable bilateral contracts that allow users to manage their exposure to credit risk. Credit derivatives are financial assets like forward contracts, swaps, and options for which the price is driven by the credit risk of economic agents (private investors or governments).

For example, a bank concerned that one of its customers may not be able to repay a loan can protect itself against loss by transferring the credit risk to another party while keeping the loan on its books.


Investment dictionary. . 2012.

Look at other dictionaries:

  • credit derivative — United Kingdom A derivative under which the parties obligations are determined by events related to the debt obligations and creditworthiness of a third party (or group of third parties) known as a reference entity (or reference entities).… …   Law dictionary

  • Credit derivative — In finance, a credit derivative is a securitized derivative whose value is derived from the credit risk on an underlying bond, loan or any other financial asset. In this way, the credit risk is on an entity other than the counterparties to the… …   Wikipedia

  • credit derivative — Contractual arrangements that allow one party to transfer credit risk of a reference asset, which it may or may not own, to one or more counterparties. The first party may be called the protection buyer , the beneficiary or the originator . The… …   Financial and business terms

  • credit derivative — kredito išvestinė finansinė priemonė statusas Aprobuotas sritis Finansai apibrėžtis Finansinė priemonė, naudojama pagrindinės pozicijos kredito rizikai apdrausti, kai ši rizika perduodama trečiajai šaliai, bet nuosavybės teisės į pagrindinę… …   Lithuanian dictionary (lietuvių žodynas)

  • credit derivative — Fin a financial instrument that transfers a lender’s risk to a third party …   The ultimate business dictionary

  • unfunded credit derivative — United Kingdom A credit derivative in respect of which the seller of the credit protection under the credit derivative makes no upfront payment to cover its potential future liabilities. Under an unfunded credit derivative, the seller will make a …   Law dictionary

  • funded credit derivative — United Kingdom A credit derivative which is structured so that the seller of the credit protection under the credit derivative makes upfront payments to cover its potential future liabilities. Related term unfunded credit derivative Practical Law …   Law dictionary

  • Credit Derivatives —    Derivative instruments created to separate the credit risk of a borrower from overall market risk. A purchaser of a bond buys a credit derivative to cover the risk of the bond s debtor defaulting. Effectively the seller or writer of the credit …   Financial and business terms

  • credit default swap — A contract between a credit protection seller (seller) and a credit protection buyer (buyer) where, in consideration of the buyer paying the seller an agreed fee, the seller agrees to pay out agreed sums to the buyer if certain credit events… …   Law dictionary

  • credit default spread — USA credit default spread, Also known as a credit default swap spread or a credit spread (or sometimes, simply, the spread). In derivatives, an amount, typically specified in basis points, above LIBOR that a …   Law dictionary

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