Credit Derivative

This Issue in United States

Concept of Credit Derivative in Futures Trading

In this context of financial law, the following is a definition of Credit Derivative: A derivative contract designed to assume or shift credit risk, that is, the risk of a credit event such as a default or bankruptcy of a borrower. For example, a lender might use a credit derivative to hedge the risk that a borrower might default or have its credit rating downgraded. Common credit derivatives include credit default swaps, credit default options, credit spread options, and total return swaps.

Credit derivative (i.e. an instrument that transfers risk from one party to the other) (see Credit Default Swap)

Concept of Credit derivative (i.e. an instrument that transfers risk from one party to the other) (see Credit Default Swap) in the context of derivatives contract, by the International Swaps and Derivatives Association (ISDA): An over the counter (OTC) financial derivative (i.e. an instrument that transfers risk from one party to the other) instrument that enables the isolation and separate transfer of credit risk.

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See Also

• Derivatives Contract