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What happens if a credit event triggers a CDS settlement assuming a cash settlement? The seller...

  1. What happens if a credit event triggers a CDS settlement assuming a cash settlement?
  1. The seller of protection must provide the buyer of protection loans or bonds of the underlying credit.
  2. The seller of protection receives stock of the underlying reference entity, but is forced to pay the buyer of protection the strike price.
  3. The buyer of protection receives the difference between the full face value and current value of the reference entities obligations arrived at through an auction process.
  4. The reference entity must “call” their reference obligations at “par” from the buyers of protection.

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Expert Solution

The buyer of protection receives the difference between the full face value and current value of the reference entities obligations arrived at through an auction process.

jeff jeffy answered 2 years ago
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