Credit Default Swap (CDS)

A credit default swap (CDS) is a contract that protects against losses resulting from credit defaults. The transaction involves two parties, the protection buyer and the protection seller, and also a reference entity, usually a bond. The protection buyer pays a stream of premiums to the protection seller, who in exchange offers to compensate the buyer for the loss in the bond’s value if a credit event occurs. The stream of premiums is called the premium leg, and the compensation when a credit event occurs is called the protection leg. Credit events usually include situations in which the bond issuer goes bankrupt, misses coupon payments, or enters a restructuring process. Financial Instruments Toolbox™ software supports:

See Also

cdsbootstrap|cdsprice|cdsspread|cdsrpv01

Related Topics

• First-to-Default Swaps(Financial Instruments Toolbox)
• Credit Default Swap Option(Financial Instruments Toolbox)
• Counterparty Credit Risk and CVA(Financial Instruments Toolbox)