Credit default swaps have non-symmetric risks and exhibit payoff patterns similar to an option contract.

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Credit default swaps involve one party paying a fixed premium to another party in exchange for protection against the default of a reference entity (such as a company or government). In the event of a default, the protection buyer receives a payoff, which can be thought of as similar to the payout of an option contract. However, the risks in a credit default swap are not symmetric, as the protection seller is obligated to pay out in the event of a default, while the protection buyer only receives a payoff in that scenario.

Credit Default Swaps Have Non-Symmetric Risks and Exhibit Payoff Patterns