Credit default swaps意思

Credit default swaps (CDS) are financial instruments used to transfer the credit risk of a debt instrument without transferring the ownership of the instrument. They are a type of derivative contract between two parties, typically referred to as the protection buyer and the protection seller.

Here's how a CDS works:

1. The protection buyer pays a regular premium to the protection seller.
2. In exchange, the protection seller agrees to compensate the buyer in the event of a credit event, such as a default, bankruptcy, or a downgrade below a certain rating.
3. The protection can be based on a specific debt instrument or a reference entity (like a company or a sovereign nation).

CDS can be used by investors to hedge against the risk of default on a bond or loan they hold. They can also be used speculatively, for example, to bet on a decline in the creditworthiness of a company without actually owning its debt.

CDS played a significant role in the 2007-2008 financial crisis, as their use became increasingly complex and the market grew significantly. The lack of transparency and oversight in the CDS market contributed to the severity of the crisis.

Since then, regulations have been implemented to increase transparency and reduce systemic risk in the CDS market, such as the requirement to trade CDS on central clearinghouses and report trades to trade repositories.