= Credit default swap
{title2=$\text{premium payments}\ \leftrightarrow\ N(1-\mathcal R)\text{ at default}$}
{wiki}
= CDS
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{synonym}
The protection buyer pays a contractual premium in exchange for compensation upon a defined credit event of the reference entity. In a simple cash-settled contract of notional $N$, a <default> loss with fractional recovery $\mathcal R$ gives payment $N(1-\mathcal R)$. Physical settlement instead exchanges an eligible defaulted obligation for par. Payments, accrued premium, maturity and eligible obligations depend on the contract. The protection buyer need not own the reference debt; the seller earns premium while taking the specified <credit risk>.
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