DEFINITION of 'Reference Obligation'
The specific underlying debt upon which a credit derivative is based. A reference obligation is issued by the reference entity. It does not represent all the forms of debt issued by the entity, but only a specific issue. Often, this obligation is the actual security that the credit derivative was created to hedge.
Next Up
BREAKING DOWN 'Reference Obligation'
The reference obligation is the specific issue of a debt security upon which the two parties in the credit derivative transaction are betting against each other. If the reference entity defaults on this issue (or another specific, agreedupon event occurs), the buyer receives a payout. If no triggering event occurs to the reference obligation, the seller of the credit derivative profits from the premium paid by the buyer.
RELATED TERMS

Reference Entity
One of the underlying parties involved in a credit derivative ... 
Reference Asset
An underlying asset used in credit derivatives, which are then ... 
Credit Analysis
A type of analysis an investor or bond portfolio manager performs ... 
Derivative Product Company  DPC
A specialpurpose entity created to be a counterparty to financial ... 
Obligation
The responsibility to meet the terms of a contract. If an obligation ... 
Underlying Security
The security on which a derivative derives its value. For example, ...
Related Articles

Professionals
What is a Derivative?
CFA Level 1  What is a Derivative?. Learn the basicas of derivative instruments. Covers various types of options, swaps and differentiates exchange and overthecounter trades. 
Investing
What Is A Derivative?
A derivative is a security whose price is dependent upon or derived from one or more underlying assets. Learn more on how investors can use this financial instrument in their trading strategies. 
Mutual Funds & ETFs
The Alphabet Soup Of Credit Derivative Indexes
Find out how these instruments work and how they are used in the market. 
Investing Basics
Warrants
Learn more about this derivative security. 
Fundamental Analysis
Derivatives 101
Learn how to use this type of investment as an alternative way to participate in the market. 
Options & Futures
Derivatives 101
A derivative investment is one in which the investor does not own the underlying asset, but instead bets on the assetâ€™s price movement with another party. 
Investing
Treasury Bills
Learn more about this government debt obligation and how it can fit into your portfolio. 
Options & Futures
Was Buffet Right about Derivatives as WMDs?
Why Warren Buffet described derivatives as weapons of mass destruction, and when can they be helpful or harmful? 
Professionals
Criticisms of Derivatives
CFA Level 1  Criticisms of Derivatives. Discusses types of criticisms facing derivatives. Offers contrasting opinions on the use of derivatives and their role in the market place. 
Professionals
Derivatives
CFA Level 1: Section 15  Derivatives
RELATED FAQS

How big is the derivatives market?
Examine the potential size of the total derivatives market, and learn how different calculations can reduce the estimate ... Read Answer >> 
What expiry months are typically available for derivatives?
Discover more about the derivatives market and learn about the varying expiration months for derivatives in different financial ... Read Answer >> 
What does it mean to be long or short a derivative?
Find out more about derivative securities and what it indicates when traders or investors establish a long or short position ... Read Answer >> 
Are ETFs considered derivatives?
Learn why most exchangetraded funds (ETFs) are not considered derivative securities and the special circumstances when this ... Read Answer >> 
What is a derivative?
A derivative is a contract between two or more parties whose value is based on an agreedupon underlying financial asset, ... Read Answer >> 
What is the default risk of a derivative?
Learn about default and counterparty risk for derivatives, and understand why derivatives traded over the counter have significant ... Read Answer >>