CDS

In a credit default swap, or CDS, one party (the protection buyer) agrees to pay another party (the protection seller) periodic fixed payments in exchange for receiving credit event protection, or a payment, should a third party (the reference entity) or its obligations suffer one or more pre-agreed adverse credit events over a pre-agreed time period. In addition, it is possible to trade CDS swaptions or options, which give the buyer the right to sell protection – or conversely the seller to buy protection – via a CDS on, or before, a pre-agreed date at a pre-agreed price.