Exploring correlation risk

Credit guide: basket default swaps


Whereas the simple CDS market provides buyers or sellers of protection with a play on the probability of a single default, an increasingly popular area of the broader credit derivatives market has been products that allow market participants to express a view on correlation risk.

In simple terms, correlation risk refers to the likelihood of an event of any kind at one credit having a direct impact on another. For the purposes of the credit derivatives market, discussions on correlation risk

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