Credit default swaps (CDS) are financial derivative contracts that are conceptually similar to insurance contracts. A CDS purchaser (the insured) pays fees to the seller (the insurer) and is compensated on the occurrence of a specified credit event. Typically, such a credit event is the default or bankruptcy of a corporate or sovereign borrower (also known as the reference entity). The difference between traditional insurance and CDS is that CDS purchasers need not have any financial stake in the reference entity. Therefore, buying a CDS can be analogous to an individual insuring his neighbor's car and getting paid if the neighbor is involved in a car accident. Just like in an insurance contract, the individual pays a periodic premium to a CDS seller in return for compensation should the credit event (accident) occur. Importantly, the individual is compensated even though he may have no financial stake in his neighbor's car.