Credit Derivatives

This chapter elaborates different types of major credit derivatives. The eight major credit derivatives according to the British Bankers Association include credit default swaps, index swaps such as credit default index swaps, basket default swaps, asset swaps and total return swaps. Credit default swaps are the largest sector of the credit derivatives market. A credit default swap has a single reference entity and is therefore referred to as a single-name credit default swap. In a credit default swap, the protection buyer pays a fee to the protection seller in exchange for the right to receive a payment conditioned upon the occurrence of a credit event by the reference entity. In a typical credit default swap, the protection buyer pays for the protection premium over several settlement dates rather than upfront.