A basket default swap is similar to a single entity default swap except that the underlying is a basket of entities rather than one single entity. There are several types of basket default swaps. The popular ones are first-to-default, n-th-to-default, n-out-of-m-to-default and all-to-default swaps. With a single entity, a credit event is usually a default of the entity. With a first-to-default swap, a credit event occurs the first time any of the entities defaults. A similar definition holds for an n-th-to-default swap. An n-out-of-m-to-default swap protects the buyer against losses related to the first defaults of the m-entity basket. Similarly, an all-to-default swap protects against losses resulting from credit events of any of the entities in the basket.
