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Recovery Risk in Credit Default Swap Premia by Timo Schläfer download in ePub, pdf, iPad

For example the buyer of a

Credit Default Swap in Context Any situation involving a credit default swap will have a minimum of three parties. These may be bonds or other kinds of securities and are essentially a small loan that the debt issuer takes out from the security buyer.

In this way

For example, the buyer of a credit default swap will be entitled to the par value of the contract by the seller of the swap, should the issuer default on payments. In this way, the buyer of a credit default swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the debt security. If the security in question is not well-rated, a default on the part of the issuer may be more likely. It is even possible for investors to effectively switch sides on a credit default swap to which they are already a party. Credit Default Swap as Insurance A credit default swap is, in effect, insurance against non-payment.