Credit Default Swap

Credit Default Swap is widely blamed for economic crisis this time. So what is CDS:
A credit default swap is a credit derivative contract in which one party — protection buyer – pays a periodic fee to another party – protection seller – in return for compensation for default or similar credit event by a reference entity over a designated period of time. The reference entity is not a party to the credit default swap. A CDS is like an insurance policy, however it is not a policy since the protector buyer does not need to actually hold any asset or suffer any loss to require a settlement.
For more details, please refer to my last year’s article: