Credit spread option
= Credit spread option
{title2=$N A_T(s_T-K)^+$}
An option with payoff linked to widening or narrowing of a specified <credit spread>. A simple spread-widening payoff has the displayed form, where $A_T$ is an annuity or settlement scale. This transfers spread-mark-to-market risk and need not require an actual <default> event. Pricing depends on spread volatility, discounting, <default> treatment and the settlement convention.