Credit derivatives: an overview.

From: Economic Review (Atlanta, GA) | Date: October 1, 2007| Author: | Copyright information

A derivative is a bilateral agreement that shifts risk from one party to another; its value is derived from the value of an underlying price, rate, index, or financial instrument. A credit derivative is an agreement designed explicitly to shift credit risk between the parties; its value is derived from the credit performance of one or more corporations, sovereign entities, or debt obligations.

Credit derivatives arose in response to demand by financial institutions, mainly banks, for a means of hedging and diversifying credit risks similar to those already used for interest ...

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