credit default option(Noun)
A put option that makes a payoff in the event the issuer of a specified reference asset defaults.
Credit default option
In finance, a default option, credit default swaption or credit default option is an option to buy protection or sell protection as a credit default swap on a specific reference credit with a specific maturity. The option is usually European, exercisable only at one date in the future at a specific strike price defined as a coupon on the credit default swap. Credit default options on single credits are extinguished upon default without any cashflows, other than the upfront premium paid by the buyer of the option, of course. Therefore buying a payer option is not a good protection against an actual default, only against a rise in the credit spread. This may explain why such options are very illiquid. They may also feature quite high implied volatilities, as shown by Damiano Brigo. However options on credit indices such as iTraxx and CDX include any defaulted entities in the intrinsic value of the option when exercised. This is expressed at times by stating that the options offer "front-end protection". Proper inclusion of front end protection complicates index options valuation, see for example Claus M. Pedersen, or Brigo and Morini.
The numerical value of credit default option in Chaldean Numerology is: 1
The numerical value of credit default option in Pythagorean Numerology is: 1
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Translations for credit default option
From our Multilingual Translation Dictionary
- opción por defecto de créditoSpanish
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"credit default option." Definitions.net. STANDS4 LLC, 2018. Web. 20 Nov. 2018. <https://www.definitions.net/definition/credit+default+option>.