Evolving credit

- By Risk Staff
- 31 Jul 2003

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Single name credit default swaps are by far the most popular credit derivative instruments traded today.

Credit default swaps (CDSs) allow investors to buy protection against bond/obligation issuers defaulting on their obligations. In the case of a credit event, the protection seller either purchases the underlying bond at par, or cash settles the difference.

The flexibility of CDSs makes them an invaluable instrument as an arbitrage, speculation or hedging product.

According to a recent British

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