CREDIT DERIVATIVES

Bonds and loan investors run a high credit risk; the risk that the issuer of the bond or credit might default payment. This seeks for investors’ hedging against the risk by way of utilization of credit derivatives. Credit derivativesis an expression describing the financial instruments used to protect investors against losses that arise from defaults. These instruments were at first introduced to banks and later to other financial institutions. Over time, these derivatives have been applied by corporate portfolio managers, treasurers, and financial institutions for hedging against to trade credit, risk, for purposes of enhancing speculation and to enhance realization of returns. (Moorad Choudhry, 2004)
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