Credit derivative

A credit derivative is a financial instrument that allows one party to transfer credit risk to another party without transferring the underlying asset. Essentially, credit derivatives are used to manage exposure to credit risk—in particular, the risk that a borrower will default on a loan or bond. Here are the key aspects of credit derivatives: 1. **Purpose**: They are used primarily for risk management, allowing investors and financial institutions to hedge against potential defaults or to speculate on changes in credit risk.