Posted in Finance, Accounting and Economics Terms, Total Reads: 384
Definition: Reference Assets
Reference assets are the underlying assets used in credit derivatives which protect the debt holder from losses. Credit derivatives are a financial instrument purchased by a bond holder or a debt lender to protect itself in case of default by the debt or bond issuer.
For Example when an investor holds a bond from a risky issuer he may buy a credit derivative. Thus in case of default from the issuer, a part of the bond or whole of the bond will be paid back to the bond holder by third party who has issued the credit derivative. Thus a buyer purchases the credit derivative as a protection against the chances of default by a risky borrower.