Credit Derivatives. Credit Derivatives. A credit derivative financial instrument Allows participants to decouple credit risk from an asset and place it with another party. Credit Risk.
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Credit risk is the risk of loss due to a Debtor's non-payment of a Loan or other line of Credit, either the Principal or Interest (Coupon) or both.
To reduce or strip out Credit risk, Risk Manager may :
Make loss provisions
Actively manage the Credit Risk Exposure
or use Credit Derivatives : Credit Default Swaps (CDS)
Credit Default Swaps CDS
(change in the terms of the debt that are adverse for creditors)