Dynamic Credit Swap

A credit default swap with the notional linked to the mark-to-market of a reference swap or portfolio of swaps. For example, the notional amount applied to computing the contingent payment could be equal to the mark-to-market value, if positive, of the reference swap at the time of the credit event. The protection buyer pays a fixed fee, either up front or periodically, which once set does not vary with the size of the protection provided. The protection buyer will only incur default losses if the swap counterparty and the protection seller fail. This dual credit effect means that the credit quality of the Protection Buyer?s position is compounded to a level better than the quality of either of its individual counterparties. It is also called a credit intermediation swap.