Reference Asset

Dictionary Says

Definition of 'Reference Asset'


An underlying asset used in credit derivatives, which are then used when there is a risky debt issuer, such as a corporation or municipality. In a credit derivative, the buyer purchases protection against the chance of default by the risky borrower by buying the reference asset.

Investopedia Says

Investopedia explains 'Reference Asset'


When an entity issues debt or borrows money, there is a chance that it will not repay the funds, which is called default risk. The debt holder is always exposed to risk by the borrower defaulting on the debt.

To hedge this risk, the debt holder can enter into a credit derivative, such as a total return or credit default swap. The swap allows the debt holder to transfer the risk they are exposed to to a third party.

comments powered by Disqus
Hot Definitions
  1. Valuation

    The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.
  2. Valuation

    The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.
  3. Tech Street

    A term used in the financial markets and the press to refer to the technology sector. Companies like Intel, Microsoft, Apple and Dell are all considered to be part of Tech Street.
  4. Tech Street

    A term used in the financial markets and the press to refer to the technology sector. Companies like Intel, Microsoft, Apple and Dell are all considered to be part of Tech Street.
  5. Momentum Investing

    An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
  6. Momentum Investing

    An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
Trading Center