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Credit Default Swaps (Recap)

A Credit Default Swap (CDS) is a contract in which the writer offers the buyer protection against a credit event in a reference name for a specified period of time in return for a premium payment.

Typical CDS cash flows

The buyer pays a premium quarterly in arrears.

The contract pays par in return for 100 nominal of debt if the reference name suffers a credit event before the maturity of the deal.

Note that settlement can take various forms, but as seen above is definitely moving towards an auction procedure

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