One of the latest financial innovations on the market are derivative credit instruments (credit derivatives), enabling the transfer of credit risk between the parties of a contract. Despite a relatively short history, the market of such instruments is booming, mainly due to the credit derivatives' precise credit risk management.

The article presents these new financial instruments, their features and motivation for concluding transactions of this type by a large group of market participants (banks, non-financial corporations, insurance companies, reinsurance companies, hedge funds or asset management companies). The article also presents the basic instruments on the market of credit derivatives (credit default swaps, total return swaps, credit margin exchange transactions, credit options, credit event-indexed debt securities) and advanced structures, including the application of the new instruments in securitisation techniques.

Credit derivatives turned out to be a well developing segment of the derivatives market. Regular research shows that the market is growing exponentially. Provisions of the New Basel Capital Accord (Basel 2) will have a significant impact on the further development of the market of credit derivatives. The last part of the article focuses on the issues of market development and presents market size, geographical variations and market division by the types of transactions. Finally, an attempt is made to outline prospects for the development of the market of credit derivatives in Poland.