The purpose of this seminar is to give you a good understanding of the mechanics, pricing, risk analysis and applications of credit derivatives and structured credit products.
We start with a brief introduction to credit derivatives and with an overview of the market for these instruments.
We then look in detail into the most important type of credit derivative: Credit default swaps (CDS). We give a thorough explanation of the mechanics of these instruments, and we give examples of different types of CDS, including single-name and basket CDS. We explain how the instruments are priced, form a theoretical as well as a market perspective, and we discuss the importance of market indexes such as iTraxx. Using practical case studies, we also present, explain and discuss how CDS are used for the hedging of corporate and sovereign default risk, spread risk, and other types of credit risks.
Further, we explain the mechanics and pricing of “total return swaps”, “credit options” and credit spread options”. We demonstrate the applications of these instruments with practical case studies. We also look at how credit default swaps and other credit derivatives are used as building blocks in creating structured and leveraged credit products, such as credit linked notes and synthetic CDO’s.
Finally, we turn to look at how the explicit and implicit risks of using credit derivatives can be assessed and managed. We explain and demonstrate how credit and spread risk can be measured and hedged. We also give an in-depth explanation of how counterparty risk of credit derivatives can be measured and how it can be managed using collateral agreements, economic capital allocation, risk transfer and other techniques. We also discuss the move towards increased standardization and centralized clearing of credit derivatives.