In a credit default swap:

I. The protection buyer assumes the credit risk.
II. One party, the buyer or the seller, owns the reference entity.
III. In the case of a credit event, and physical delivery is required, the protection buyer delivers the reference obligation.
IV. A CDS becomes more valuable to the buyer if the credit quality of the reference entity gets worse.

Explanation: I: The protection seller assumes the credit risk.
II: The reference entity belongs to a third party. Neither the buyer nor the seller needs to hold the asset.
III. The seller pays the buyer of the CDS the notional amount.