Reference Assets

Posted in Finance, Accounting and Economics Terms, Total Reads: 304

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.



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