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Derivatives

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  • July 15, 2021
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Synthetic Credit Risk Premium

The price of credit risk quoted in a credit default swap. This price is derived indirectly from the credit risk associated with a credit default swap, rather than normal credit risk (measured in a direct way by assessing the underlying credit- e.g., bond or debt- per se).

It is used as an input in calculating the CDS bond basis, i.e., difference between the synthetic credit risk premium and the cash market premium (the price of credit risk as traded in the cash market using asset swaps.).


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