Credit Risk. Credit risk or default risk evolves from the possibility that one of the parties to a derivative contract will not satisfy its financial obligations under the derivative contract.

A credit derivative is a financial instrument which separates and transfers some of the credit risk of a loan. Some examples of credit derivatives are credit linked notes or credit default swaps.

Manuel Ammann has written:

'Credit risk valuation' -- subject(s): Credit, Credit ratings, Management, Risk management

'Pricing derivative credit risk' -- subject(s): Derivative securities, Prices, Mathematical models, Credit, Risk

credit default swaps

This method would be used when speculating on how credit worthy the reference is. This term is also referred to as a credit derivative contract, and is used among brokers.