How Do Credit Default Swaps (CDS) Relate to Counterparty Risk?
A Credit Default Swap (CDS) is a financial derivative used to transfer credit risk, which is a form of counterparty risk, from one party to another. The buyer of a CDS pays a premium to the seller in exchange for the right to receive a payout if a specified "reference entity" defaults on its debt.
The CDS essentially acts as an insurance policy against the counterparty risk of a bond issuer, allowing investors to hedge or speculate on credit events.
Glossar
Credit Default Swap (CDS)
Mechanism ⎊ A Credit Default Swap (CDS) functions as a financial contract wherein one party, the protection buyer, makes periodic payments to another, the protection seller, in exchange for a payoff should a specified credit event occur with a reference entity.
Credit Default Swaps (CDS)
Mechanism ⎊ Credit Default Swaps (CDS) represent a transfer of credit risk between two parties, functioning as insurance against the default of a specified reference entity or asset, and within cryptocurrency, this concept extends to decentralized lending platforms and stablecoin protocols.
Cds Contracts
Contract ⎊ A Credit Default Swap Contract is a bilateral financial agreement where one party, the protection buyer, pays a periodic premium to the protection seller.
CDS
Structure ⎊ Credit Default Swaps, within cryptocurrency derivatives, function as a mechanism to transfer credit risk associated with a specified reference entity or asset.