Credit derivatives revolutionize investment strategies, boosting returns and freeing up credit lines.
Credit derivatives are financial tools used by investment banks to manage credit risk. They allow buyers to reduce exposure to a specific entity or group of entities, while sellers take on more risk for potentially higher returns. Single name credit derivatives focus on one entity, while multi-name derivatives involve a group. Common types include credit default swaps, asset swaps, and total return swaps. Insurance companies often sell credit protection to increase returns.