Credit derivative(redirected from Credit derivative risks)
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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
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.
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