Introduction to Credit Derivatives

In addition to your class tuition and study materials, you will receive the following:


Case Study

• TRS exercise using an example term sheet to calculate cash flows
• Recent examples of synthetic CLOs are examined

Exercises

• Candidates are given parameters of a CLO and asked to design a tranched CLO

Other Extras

• Certificate of attendance

Level: Introductory


Synopsis:
This course provides an insight into credit related financial products and the derivatives market. It looks at aspects of products and strategies from a dynamic and practical point of view. Certain pricing concepts will be introduced and evaluated from a practical rather than theoretical perspective.


At the end of the course participants will be able to: Understand the importance of standardised terms and the significance of the International Swap Dealers Association (ISDA) master agreement . Understand how credit derivatives affect a bank's balance sheet . Be able to identify the main credit derivative products; total rate of return swaps, credit spread options, credit default swaps and credit linked notes . Consider the basics of pricing credit risk including an introduction to basic modelling techniques . Understand the developments in the credit markets that have led to credit derivatives and their growing popularity .


Prerequisites:
Understanding Derivatives, Understanding Fixed Income


Suitable For:
Individuals seeking to broaden their understanding of credit risk and credit derivatives from a practical point of view


The credit derivatives market

• The key players in the credit derivatives market
• Reasons for the recent growth in the credit derivatives market
• Market size and breakdown

Credit risk and credit risk pricing

• Credit markets and credit market terminology
• Measuring credit risk
• Distressed debt
• Default events
• Default probabilities, transition matrices and correlation
• Recovery rates

Asset swaps

• Definitions and terms
• Cash flows
• Motivations of the asset swap participants

Total rate of return swaps (TRSs)

• Definitions and terms
• Cash flows
• Motivations of the buyer and seller of a TRS
• Payment calculations
• Matching mismatches
• Leverage and TRSs

Credit default swaps (CDSs)

• Definitions and terms
• The credit event
• The default payment
• Pricing CDSs
• Funding cost arbitrage

Credit linked notes (CLNs)

• Definitions and terms
• Benefits of CLNs vs other credit derivatives

Collateralised Debt Obligations (CDOs) and CLNs

• Overview of CDOs
• CLNs created from CDOs
• Credit linked pooled structures
• Synthetic CDOs
• Over collateralisation