How About Those Credit Default Swaps: THE BIG SHORT
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Credit Default Swaps: A Simple Explanation of CDS
The Wall Street Journal today has an interesting story about how AIG got into hot water by writing a lot of credit default swaps. So I thought it was a good time for a simple explanation of what a CDS...
Credit Default Swap (CDS) Definition
A credit default swap (CDS) is a particular type of swap designed to transfer the credit exposure of fixed income products between two or more parties.
What Are Credit Default Swaps ?
It is a contract that includes two parties which are protection buyer and protection seller, where the debt is related to reference entity, which is usually a company or a government. The process goes as follows: The protection buyer pays quarterly premium payments to the protection seller