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FIRST-TO-DEFAULT SWAP Definition & Legal Meaning

Definition & Citations:

An OVER THE COUNTER DEFAULT SWAP comprised of a BASKET of reference credits that entitles the purchaser to a payout on the first one that DEFAULTS; once a default occurs, the transaction terminates. Since swap pricing generally takes account of reference credit CORRELATIONS, the DERIVATIVE is cheaper than the purchase of individual contracts on the same reference credits. See also CREDIT DERIVATIVE.

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