Credit default swap (CDS) ialah kontrak derivatif kredit antara dua pihak perjanjian, di mana "pembeli" membuat pembayaran berkala kepada "penjual" sebagai pertukaran bagi hak untuk menerima bayaran sekiranya berlaku kemungkiran atau "peristiwa kredit" berkenaan kegagalan pihak ketiga. Ia sangat serupa dengan kontrak insurans bagi kemungkinan kegagalan syarikat, terutamanya ke atas bon dan hutang korporat "entiti rujukan", iaitu syarikat yang menjadi subjek CDS tersebut. Namun, tidak seperti insurans, tiada had bilangan kali sesebuah syarikat boleh dilindungi atau dikenakan CDS. Sebagai balasan bagi bayaran kecil yang menyerupai premium insurans, pembeli CDS berpotensi memperoleh keuntungan luar biasa sekiranya subjek tersebut gagal. Kegagalan Lehman Brothers baru-baru ini telah mencetuskan peristiwa kredit yang akhirnya membawa kepada liabiliti sebanyak 92 sen bagi setiap dolar ke atas CDS yang ditulis ke atas hutang Lehman.

A credit default swap (CDS) is a credit derivative contract between two counterparties, where the “buyer” makes periodic payments to the “seller” in exchange for the right to a payoff if there is a default or “credit event” regarding the failure of a third party. They are very similar to an insurance contract over the possibility of company failure particularly on the bonds and corporate debt of the “reference entity” company which is the subject of the CDS. Unlike insurance, however, there is no limit on the number of times that a company can be covered or subject to a CDS. In return for small payments like insurance premiums the buyer of the CDS could stand to make an enormous windfall profit in the event of the failure of the subject. The recent failure of Lehman Brothers caused a credit event which ultimately led to a 92 cents on the dollar liability on CDSs written on Lehman debt.

Credit default swap ialah instrumen derivatif kredit yang paling meluas didagangkan. Bank for International Settlements melaporkan bahawa jumlah nosional bagi credit default swap OTC yang belum dijelaskan ialah $42.6 trilion pada Jun 2007. Menjelang akhir 2007, anggaran nilai kontrak Credit Default Swap ialah kira-kira USD 60 trilion. Di Amerika Syarikat sahaja, Office of the Comptroller of the Currency melaporkan bahawa jumlah nosional derivatif kredit yang belum dijelaskan daripada bank pelapor ialah $16.4 trilion pada akhir Mac 2008. (Untuk memberi gambaran tentang angka-angka ini, CIA World Fact Book menganggarkan KDNK Amerika Syarikat bagi 2007 pada $13 trilion.) Satu perbezaan besar antara credit default swap dengan jenis insurans lain ialah anda tidak perlu memiliki bon atau instrumen yang diinsuranskan untuk memperoleh insurans ke atasnya. Jika bon itu gagal, anda akan dibayar, dengan syarat bank yang menulis kontrak itu tidak gagal. Namun "penginsurans" bon itu tidak dikawal selia di mana-mana bursa, dan transaksi tersebut sebahagian besarnya berada di luar sebarang kawal selia kerajaan. Spekulator boleh memperoleh keuntungan dengan membeli insurans ke atas bon sesebuah syarikat, kemudian menjual pendek saham syarikat itu (menjual saham tanpa memilikinya) dalam kuantiti yang besar, sehingga memberi tekanan kepada syarikat itu agar gagal atau agar nilai CDS mereka meningkat. Jika syarikat itu gagal, pulangannya boleh menjadi amat besar.

Credit default swaps are the most widely traded credit derivative product. The Bank for International Settlements reported the notional amount on outstanding OTC credit default swaps to be $42.6 trillion in June 2007. By the end of 2007 there were an estimated USD 60 trillion worth of Credit Default Swap contracts. In the US alone, the Office of the Comptroller of the Currency reported the notional amount of outstanding credit derivatives from reporting banks to be $16.4 trillion at the end of March, 2008. (To put these numbers in perspective, the CIA World Fact Book estimated the US GDP for 2007 at $13 trillion)/ One large difference between credit default swaps and other types of insurance, is you do not need to own the bond or instrument being insured in order to obtain insurance on it. If the bond fails, then you get paid, provided the bank writing the contract does not fail. Yet the “insurer” of the bond is not regulated on any exchange and the transaction is largely beyond any government regulation. Speculators can make money by purchasing insurance on a company's bonds then short the stock (sell the stock without owning it) of the company in great quantity, causing pressure on the company to either fail or the value of their CDS to rise. If the company fails the returns can be enormous.

Terdapat lebihan besar kedudukan spekulatif dalam CDS – pasaran ini jauh lebih besar daripada hutang korporat yang diliputinya. Seseorang mungkin boleh memahami motif untuk mengurangkan risiko kegagalan korporat bagi mereka yang memegang hutang korporat syarikat rujukan. Namun, apabila CDS berjumlah beberapa kali ganda hutang yang wujud, jelaslah bahawa ramai spekulator sedang berjudi ke atas kegagalan syarikat, dan bukannya cuba mengurangkan risiko. Bagi Lehman Brothers, jumlah hutangnya ialah $150 bilion, manakala kontrak CDS yang dikeluarkan ialah $400 bilion. Pasaran $60 trilion bagi "senjata pemusnah besar-besaran" ini telah membawa perjudian ke tahap baharu yang tidak pernah berlaku sebelum ini.

There is a massive overhang of speculative positions in CDS – the market is dramatically larger than the corporate debt which it is covering. One can possibly understand the motive for mitigating the risks of corporate failure for those holding the corporate debt of the reference company. However, when CDS amount to several times the debt in existence it is clear that a large number of speculators are gambling over company failure rather than seeking to mitigate risk. For Lehman Brothers $150 billion total of debt, $400bn of CDS contracts were in issuance. The $60 trillion market for these weapons of mass destruction has taken gambling to a new and unprecedented level.