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Reference Obligation

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Dictionary Says

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.

Investopedia Says

Investopedia explains '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, agreed-upon 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.

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