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Derivatives




Credit Forward


A credit derivative which constitutes a forward contract on a credit spread. More specifically, it is a single period OTC contract whose payoff is based on the difference between an agreed credit spread (or price) and the terminal credit spread (price) of a credit-risky debt reference. This contract provides a hedge against an increase in default risk on a debt issue (i.e., the decline in credit quality of an issuer) after the interest rate is set and the debt has been issued.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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