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Credit risk option
An option whose underlying is a given credit spread and whereby the writer agrees, in exchange for a premium paid by the holder, to pay the holder an amount calculated based on the narrowing (in the case of a call option) or widening (in the case of a put option) of the credit spread in relation to a level that was specified for the exercise of the option.
Unlike other credit derivatives, the exercise of the option does not depend on the occurrence of a specific credit event, but only on the widening or narrowing of the credit spread in relation to the predetermined level. Payment is made regardless of what caused the widening or narrowing of the spread.
Translations
Synonyms and variations
- Credit spread 3.
- Credit spread option
- CSO