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Default is the occurrence of an event or circumstance against which a party to a contract seeks protection. For example, a contract may state that the recording of a lien against certain property is a default .
The probability of default is an estimate of the likelihood that the default event will occur. It applies to a particular assessment horizon, usually one year. Credit scores, such as FICO for consumers or bond ratings from S&P, Fitch or Moodys for corporations or governments, typically imply a certain probability of default.
Obligation Default; Credit events can have huge implications because they put lenders in a bad spot with high risk, where money and contractual obligations are lost or broken. These swaps are essentially insurance against non payment to where if a credit event occurs, the seller compensates the buyer.
Loss given default or LGD is the share of an asset that is lost if a borrower defaults.. It is a common parameter in risk models and also a parameter used in the calculation of economic capital, expected loss or regulatory capital under Basel II for a banking institution.
Exposure at default or (EAD) is a parameter used in the calculation of economic capital or regulatory capital under Basel II for a banking institution. It can be defined as the gross exposure under a facility upon default of an obligor. [1] [2] Outside of Basel II, the concept is sometimes known as Credit Exposure (CE). It represents the ...
A credit default swap (CDS) is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default (by the debtor) or other credit event. [1] That is, the seller of the CDS insures the buyer against some reference asset defaulting.
The ISDA Master Agreement is a development of the Swaps Code, introduced by ISDA in 1985 and updated in 1986. In its earliest form, it consisted of standard definitions, representations and warranties, events of default, and remedies.
Credit default risk – The risk of loss arising from a debtor being unlikely to pay its loan obligations in full or the debtor is more than 90 days past due on any material credit obligation; default risk may impact all credit-sensitive transactions, including loans, securities and derivatives.