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CREDIT SPREAD OPTION Definition & Legal Meaning

Definition & Citations:

An OVERTHECOUNTER OPTION that generates a payoff based on the difference between a CREDIT SPREAD (or price) and a predefined STRIKE PRICE. In standard form credit options generate a continuum of payoffs based on credit appreciation or depreciation; a credit option structured in binary form (as a DEFAULT OPTION) generates a payoff based solely on default by the reference credit. See also CREDIT DERIVATIVE.


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