A Credit Default Swap (CDS) is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default (by the debtor) or other credit event. Credit events usually include situations in which the bond issuer goes bankrupt, misses coupon payments, or enters a restructuring process. The transaction involves two parties, the protection buyer and the protection seller, and also a reference entity, usually a bond. A CDS can be used by investors to hedge against the risk of default on their investments or to speculate on the creditworthiness of a particular issuer.
Related Definitions in the Project: The Commercial Definitions
