Reference Obligation

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

Definition: Reference Obligation

A type of underlying debt on which the credit derivative is based, commonly referred to as "ref ob" is known as reference obligation. It is also called reference asset or covered obligation.


In other words, reference obligation issued by reference entity is the underlying debt that can set off a pay out in credit derivative and is generally the actual security that need to be hedged by creating the credit derivative.


A debt instrument specified in transaction confirmation for credit derivatives transactions such as CDS (credit default swap). A key component of credit default swap, it represents specific issue of debt issued by the entity upon which the two parties involved in credit derivative are betting. If the specific credit event occur or the reference entity defaults on this issue, the buyer will receive a payout while if no trigger event occurs, the issuer of the derivative makes profit by the premium paid by the buyer.

 

Advertisements



Looking for Similar Definitions & Concepts, Search Business Concepts


Similar Definitions from same Category: