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mallimal... said...

(m)

A credit derivative is a derivative of the OTC is designed to transfer credit risk from one party to another. By synthetically creating or eliminating credit exposures, the carriers allows more efficient management of credit risks. Credit derivatives take many forms. Three basic structures are:

Credit default swap, two parties conclude an agreement whereby one party pays a fixed coupon Other magazines for the specified service life of the agreement. The other party makes no payment if a credit event planned. Credit events are defined in the rule to include a material, insolvency, bankruptcy or debt restructuring of a particular reference asset. If such a credit event occurs, the party that ends a payment to the first, and then swap. The payment is often the declining value of the reference plant after the credit event linked.

Total return swap, two parties enter an agreement for the periodic payments, the exchange during the specified term of the agreement. A party payments based on TotaReturn of the coupons plus capital gains or losses of a particular reference system. The other "fixed payments or as a floating rate swap interest in the vanilla. Payments made by the two parties on the same notional amount. The reference asset can be almost any asset, index or basket of assets.

Credit Linked Note: A debt instrument with an embedded credit derivative packed. In exchange for higher yields in the notice that accept investors with access to a specific credit event. For example, a reference could provide for the repayment of capital, reduced below par in the event of an asset's standard reference prior to the maturity of the note.

The fundamental difference between a swap credit default swaps and total return is the fact that entering the default swap providing credit protection against specific credit events. The total return swap provides protection against loss of value regardless of the cause of failure was the mood in the market credit spreads to widen, etc.

January 12, 2010 at 6:45 AM

Jags said...

A credit derivative is a contract (derivative) to transfer the risk that the overall performance of the loan assets below an agreed level without the transfer of the underlying security. This is usually done by transferring the risks to an asset credit report. Early forms of credit derivatives were financial stocks. Some typical forms of credit derivatives are total return swap, credit default and credit linked notes.

January 12, 2010 at 12:45 PM