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Basics
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Credit derivatives terminology
By
Vinod Kothari
Payer
option: An option to buy protection
with reference to a reference entity. Thus, instead of actually buying
protection, one may buy an option to buy protection paying a certain spread.
The buyer of the payer option holds a bearish view of the reference entity,
but his losses are limited in case the spreads do not widen. Compare with receiver
option.
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