Asset Backed Credit Default Swap - ABCDS

DEFINITION of 'Asset Backed Credit Default Swap - ABCDS'

A redit default swap wherein the reference asset is an asset-backed security rather than a corporate credit instrument. The buyer of an asset backed credit default swap (ABCDS) is buying protection for defaults on asset-backed securities or tranches of securities, rather than protecting against the default of a particular issuer.

BREAKING DOWN 'Asset Backed Credit Default Swap - ABCDS'

Asset-backed credit default swaps are structured differently from other credit default swaps due to the nature of the instrument being hedged. For example, since many asset-backed securities amortize and pay monthly, the credit default swap will more closely match these features. The most widely used ABCDS transactions cover U.S. subprime mortgage tranches of mortgage securitizations.

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RELATED FAQS
  1. What are some risks a company takes when entering a currency swap?

    Read about the risks associated with performing a currency swap, including counterparty credit risk in the event that one ... Read Answer >>
  2. Who is the counterparty of a derivative?

    Learn about the counterparty to a derivative contract, and how derivative swap agreements traded over the counter have counterparty ... Read Answer >>
  3. When was the first swap agreement and why were swaps created?

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  4. Should you calculate Value at Risk (VaR) for counterparty credit risk?

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  5. What would motivate an entity to enter into a swap agreement?

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  6. What level of default rate is typical for the credit services industry?

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