Credit Default Swap (CDS)

Financial contract which allows the transfer of third-party credit risk from one party to another. One party in the swap faces credit risk from a third party, and the counterparty in the credit default swap agrees to insure this risk in exchange for regular periodic payments (essentially an insurance premium). Contingent on the occurrence of a credit / default event, the party providing insurance will have to purchase the defaulted asset from the insured part, or pay a cash settlement amount.
In case of a single-name CDS it concerns a credit derivative where the reference entity is a single name. A contract where the reference entity is more than one name as in portfolio or basket credit default swaps or credit default swap indices called a Multi-name CDS.A basket credit default swap is a CDS where the credit event is the default of some combination of the credits in a specified basket of credits.