A variation on the credit default swap (CDS). In a simple CDS, payment under the swap is triggered by a credit event, such as non-payment of interest. Here the trigger requires both the typical default plus some contingent event; e.g., default on another credit. Default correlation between the two credits, of course, is the critical variable. To illustrate with an extreme, under perfect correlation (correlation = 1.0), the contingent CDS would be identical to the regular CDS. On the other hand, under perfect negative (default) correlation, the contingent CDS would have no value because there can be no concurrent default. The valuation boundaries, therefore, are zero and the value of the CDS without the contingent event.In a contingent credit default swap (CCDS), the trigger requires both a credit event and another specified event.
The second trigger in a CCDS is usually a market or industry variable. A CCDS is generally employed to protect specific exposure when larger industry or market forces have deteriorated.