Credit Default Swap

Credit Default Swap

A swap designed to transfer the credit exposure of fixed income products between parties.

Notes:

The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the product. By doing this, 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 swap will be entitled to the par value of the bond by the seller of the swap, should the bond default in its coupon payments.

See also: Bond, Default, Fixed Income Security, Swap