Nth to default swaps and notes: all about default correlation

By Douglas Lucas and Alberto Thomas

This article was first published as a chapter in Credit Derivatives, by Risk Books.

An nth to default swap is a credit default swap (CDS) that references a basket of underlying credits, typically three to five names. The protection seller under the swap is exposed to the default of the reference credit that defaults “nth” (first, second, third …). An nth to default note is a creditlinked note (CLN) that embeds this type of default swap in its terms. The purchaser of the note is the seller of cr

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