Credit derivatives

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This overview is a guide to the Banking & Finance content within the Credit derivatives subtopic, with links to appropriate materials.

What are credit derivatives?

A credit derivative is a bilateral transaction which takes its underlying value from the credit risk of a third party, known as the 'reference entity'. The reference entity issues reference obligations, which refer to its specific underlying direct and indirect obligations. The primary purpose of a credit derivative is to isolate the credit risk of that reference entity from all other risks. This reference entity can be a corporate, sovereign, municipality or a similar organisation and does not need to be a party to, or even aware of, the transaction.

The party assuming the credit risk of the reference entity is known as the 'protection seller' and the party acquiring the credit protection is known as the 'protection buyer'. If a Credit Event (as defined in the 2014 ISDA Credit Derivative Definitions) occurs on the reference entity, the payment obligations under the transaction will be triggered and the transaction settled.

Credit derivatives are entered into for any of the following reasons:

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A negotiation guide for the 2002 ISDA Schedule

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A negotiation guide for the 2002 ISDA Schedule

A negotiation guide for the 2002 ISDA Schedule

A negotiation guide for the 2002 ISDA ScheduleWhat is the ISDA Schedule?The International Swaps and Derivatives Association (ISDA) documentation framework involves layers of documentation (often referred to as the ISDA documentation architecture). The key layers of the documentation for a trade

Total return swap (TRS) structure diagram

Total return swap (TRS) structure diagram

Total return swap (TRS) structure diagramHow does a total return swap work?•The TRS payer (protection seller) is, for example, a bank, A, and the TRS receiver (protection buyer) is, for example, a hedge fund, insurance company, pension scheme, UCITS or other investment fund, B.•A holds the reference

ISDA and FIA Cleared Derivatives Execution Agreement and Addendum

ISDA and FIA Cleared Derivatives Execution Agreement and Addendum

ISDA and FIA Cleared Derivatives Execution Agreement and AddendumClearing requirements have brought about significant changes to derivatives documentation. While uncleared derivatives continue to be governed by an International Swaps and Derivatives Association (ISDA) Master Agreement and a Credit

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Foreign exchange (FX) derivativesWhat is a FX derivative?A foreign exchange (FX) derivative is a type of derivative whose payoff depends on the FX rates of two or more currencies. The market for FX is measured in trillions of dollars, and includes a substantial amount of FX derivative contracts.