Basket default swap (BDS) - Financial definition
Financial acronyms
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Concise definition of the term basket default swap
A basket default swap is an insurance contract against default similar to a credit default swap, except that payments are indexed to a basket of entities, rather than to a single reference asset.
Comprehensive definition of the term basket default swap
The BDS provides default protection on one or a number of entities in the basket but not every single one.
There are different types of basket default swaps, depending on which entity or entities they are covering. For example:
- A first to default basket default swap will offer protection against the first default only;
- a second to default basket default swap will only offer protection against the second entity to default;