CDS

A Credit Default Swap (CDS) is a type of derivative that obliges the seller to compensate the buyer in the event of a loan default or other credit event (e.g. restructuring) of some reference loan, in exchange for a series of regular payments up until the credit event or the end of the contract. Typically, the contracts have a maturity of 5 years. A CDS can be thought of as a kind of insurance; it can be bought by any investor, not only those investors that actually hold the reference loan.

Usually, the premium that is paid at regular intervals (the CDS ‘spread’) is of interest for research. Bloomberg can be used if you are only interested in the CDS spreads of one or only a few companies/loans. Datastream is more convenient if you have a list of companies/loans in which you are interested.

 

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