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Derivatives

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  • November 2, 2022
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Credit Swap

An swap agreement which is entered into by two counterparties, a buyer and seller of credit protection, and whereby the buyer (the holder) has the right to sell to the protection provider (the seller) a debt obligation (e.g. a bond, loan, etc.) for its face value in the event of default by issuer. As such, a credit swap provides insurance against a credit event such as default by a named issuer (a name) which could be a corporation or a sovereign entity.

The credit swap is also referred to as a credit default swap (CDS).


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