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Zero Recovery Swap


A swap that automatically terminates with one counterparty of which having to make no further payments if the other counterparty gets into default. In other words, the trade is knocked-out with a zero-recovery or rebate if either party defaults regardless of who is with net credit (in the money). Accordingly, this swap provides an alternative to posting or requiring collateral.

A zero-recovery swap is a type of credit extinguishers. It is also known as a zero-recovery credit default swap (zero-recovery CDS).



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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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