Credit derivative

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Credit derivative

Financial instruments in which the payoffs depend on the credit risk of companies or government entities, other than the counterparties to the credit derivative transaction itself.

Credit Derivative

Any derivative that allows an investor to hedge its credit risk. For example, if a brokerage is concerned that a client may be unable to pay a margin call, it may transfer this risk to another investor in exchange for paying a fee. Regular derivatives, like forward contracts and options, may be used as credit derivatives, depending on the credit risk of an investor's other positions.