Credit Derivatives: Mechanics, Analysis, Applications and Risk Management

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Introduction and Overview

• Credit Derivatives and their Predecessors
• Historical Development
• Overview of Instruments and Markets

Credit Default Swaps

• Definitions and Mechanics
• Differences/Similarities with Asset Swaps
• Types and Mechanics
  • Single-name corporate CDS
  • Sovereign CDS
  • Basket CDS
• Credit Events
  • Bankruptcy
  • Failure to pay
  • Restructuring
  • Moratorium/Repudiation
  • …….
• Case Studies: Credit Events

12.00 - 13.00 Lunch

13.00 - 16.30 Credit Default Swaps (Continued)

• Settlement Methods
  • Cash settlement
  • ISDA auction procedure
  • Physical delivery
• Pricing of CDS
  • Estimating the theoretical price
  • Backing out PD form quoted spreads
  • Pricing basket CDS
• The iTraxx Index
  • Construction
  • Components
  • Applications
  • A live sight-seeing tour of the iTraxx index!
• CDS Applications (Case Studies)
  • Hedging corporate credit risk with single name CDS
  • Hedging sovereign risk
  • Hedging portfolio credit risk
  • Hedging spread risk
• Exercises

Day Two

09.00 - 09.15 Recap

09.15 - 12.00 Equity Default Swaps

• What is an Equity Default Swap?
• Differences between EDS and CDS
• Carry Trades with CDS and EDS
• Small Exercise

Total Return Swaps

• Mechanics and Applications of TR Swaps
• Pricing of TR Swaps
• Case Study
  • Using TR swap to create synthetic exposure to leveraged loan portfolio
• Small Exercise

Credit Options

• Credit Spread Forwards, Calls and Puts
• Credit Spread Trading Strategies
• Case Studies: Hedging Spread Risk
• Small Exercise

12.00 - 13.00 Lunch

13.00 - 16.30 Credit-Linked Notes and CDOs

• What is a Credit-Linked Note
• Examples of Credit-Linked Notes
• Leveraged Credit Linked Notes
• Case Study
• Credit –Linked Notes as Building Blocks in Synthetic CDOs
• Valuation of Credit-Linked Notes and Synthetic CDOs
• Small Exercises

Risk Management of Credit Derivatives

• Explicit Risks
  • Credit risk of underlying
  • Spread risk
• Implicit Risks
  • Counterparty risk
  • Operational risk
• The Move towards Standardization and Centralized Clearing

Evaluation and Termination of the Seminar