Types
Credit derivatives are fundamentally divided into two categories: funded credit derivatives and unfunded credit derivatives.
An unfunded credit derivative is a bilateral contract between two counterparties, where each party is responsible for making its payments under the contract (i.e. payments of premiums and any cash or physical settlement amount) itself without recourse to other assets.
A funded credit derivative involves the protection seller (the party that assumes the credit risk) making an initial payment that is used to settle any potential credit events. (The protection buyer, however, still may be exposed to the credit risk of the protection seller itself. This is known as counterparty risk.)
Unfunded credit derivative products include the following products:
- Credit default swap (CDS)
- Total return swap
- Constant maturity credit default swap (CMCDS)
- First to Default Credit Default Swap
- Portfolio Credit Default Swap
- Secured Loan Credit Default Swap
- Credit Default Swap on Asset Backed Securities
- Credit default swaption
- Recovery lock transaction
- Credit Spread Option
- CDS index products
Funded credit derivative products include the following products:
- Credit linked note (CLN)
- Synthetic Collateralised Debt Obligation (CDO)
- Constant Proportion Debt Obligation (CPDO)
- Synthetic Constant Proportion Portfolio Insurance (Synthetic CPPI)
Read more about this topic: Credit Derivative
Famous quotes containing the word types:
“The wider the range of possibilities we offer children, the more intense will be their motivations and the richer their experiences. We must widen the range of topics and goals, the types of situations we offer and their degree of structure, the kinds and combinations of resources and materials, and the possible interactions with things, peers, and adults.”
—Loris Malaguzzi (1920–1994)
“... there are two types of happiness and I have chosen that of the murderers. For I am happy. There was a time when I thought I had reached the limit of distress. Beyond that limit, there is a sterile and magnificent happiness.”
—Albert Camus (1913–1960)
“The rank and file have let their servants become their masters and dictators.... Provision should be made in all union constitutions for the recall of leaders. Big salaries should not be paid. Career hunters should be driven out, as well as leaders who use labor for political ends. These types are menaces to the advancement of labor.”
—Mother Jones (1830–1930)