Business Terms: Credit Default Swap

Credit Default Swap:

In the financial world, a credit default swap which in acronym is known as CDS, is a financial swap agreement that the seller of the CDS will compensate the buyer; who is also the creditor of the reference loan, in the event of a loan default by the debtor or other credit event.

The buyer of the CDS makes a series of payments; these payments are known as CDS fee or spread, to the seller and in exchange, receives a payoff if the loan defaults. CDS was invented by Blythe Masters from JP Morgan in 1994.