in CDS, in case of a default does the insurer keep paying coupon payments till the bond matures or it compensates only the principal amount?
2006-08-31 11:22:25 · 2 answers · asked by vincent vega 2 in Business & Finance ➔ Investing
Neither. In the event of default, the insurer pays the insured an amount specified in the swap agreement. Whether or not the insured holds any bonds is irrelevant, so the notional value of the swap is not tied to anything other than the swap agreement.
2006-08-31 12:34:37 · answer #1 · answered by NC 7 · 0⤊ 0⤋
CDS are normally based on specific contracts per transaction. However, generally, a payment "trigger", which can be a certain even such as a default, can compel the seller of the CDS to pay the full principal amount at once. When a credit event occurs, the debt/financial instrument is immediately called upon and no other coupon payments are paid anymore since the principal is paid instantly.
2006-08-31 18:57:47 · answer #2 · answered by Terry L 2 · 0⤊ 0⤋