In a CDS the payoff is a payment made by CDS _ to CDS _ and occurs when the _____ defaults

In a CDS the payoff is a payment made by CDS _____ to CDS _______ and occurs when the _______ defaults

buyer; seller; buyer
seller; buyer; reference entity
buyer; seller; reference entity
seller; buyer; buyer
buyer; seller; seller

Solutions

Expert Solution

In a CDS the payoff is a payment made by CDS seller to CDS buyer and occurs when the reference entity defaults.

In short, In credit default swap, a buyer buys a bond from a reference entity and earns interest on that bond. Due to a possibility of a risk that the reference entity may default and will not give him back the principal amount at maturity, he can sell that bond to a seller. The seller will pay the buyer the principal back, in case the reference enitity defaults which is known as a payoff.

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jeff jeffy answered 1 year ago

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