Understanding Credit Derivatives

In the context of fixed income investing, credit derivatives are financial instruments used to manage or transfer credit risk. One notable type of credit derivative is the credit default swap (CDS), which allows the buyer to transfer the risk of default on a bond or loan to the seller of the CDS. Consider the following statements regarding credit derivatives:

1. A credit default swap can be used to hedge against credit risk.

2. Credit derivatives are exclusively used by institutional investors.

3. The buyer of a credit default swap pays periodic premiums to the seller.

Based on this information, which statement is accurate?