
Credit Derivatives 491
e major characteristic of a credit derivative is that it can
de-couple credit risk from funding. e entities can alter the
credit risk exposure without actually buying or selling bonds
or loans in the primary or secondary markets.
A credit default swap (CDS) is a bilateral contract in which
one party, called the protection buyer, pays a periodic fee,
typically expressed in basis points per annum, on a notional
amount in return for a contingent payment by the other
party, called the protection seller, following the occurrence of
a credit event with respect to a reference entity.
Credit event ...