What is DEFAULT SWAP?

An OVERTHECOUNTER SWAP involving the exchange of deferred PREMIUM (often in the form of a floating rate CASH FLOW) for a lumpsum payment if an UNDERLYING reference credit DEFAULTS. The lumpsum payoff associated with the swap, which depends on the quoted price of the defaulted debt, is similar to that of a DEFAULT OPTION. See also CREDIT DERIVATIVE.

More On This Topic



Link to This Definition
Did you find this definition of DEFAULT SWAP helpful? You can share it by copying the code below and adding it to your blog or web page.
Written and fact checked by The Law Dictionary