Credit Default Swaps: From Vanilla to Exotic

Credit derivatives is one of the most successful innovations of financial engineering over the last ten years. The current active credit derivatives market has produced an array of new products. This course explores the valuation approaches for vanilla and exotic credit derivative products while describing the mechanics of each product. Hands-on Excel™/VBA exercises are used to facilitate theoretical understanding. The class also discusses real-life position examples as case studies to illustrate applications of credit derivatives.

15-Sep-2008 -- 27-Oct-2008New YorkUSD$1775
NY Institute of Finance - Midtown5:45pm - 8:15pm Instructional Method:
Group-Live
Instructor(s): [ Wilfred Daye; ] Mon Level: Intermediate
CPE Credits: 15.0

Anyone who has an interest in credit derivatives.
No advance preparation required.
Students will be able to:
  • Understand intuitions behind various valuation approaches
  • Develop hands-on, spreadsheet modeling skills
  • Build basic pricing models for credit derivative products
  • Demonstrate application of these skills to solve a variety of investment related problems
Attendees must have a solid knowledge of ExcelTM
"This course has too many strengths to name; I highly recommend it!"
Schedule Note
There will be no class session on Monday, September 29, 2008.
SESSION ONE

Introduction

  • Review of Valuation of Risky Bonds
  • Credit Derivatives Market Overview

Single Name CDS I – Reduced Approach

  • Review of Probability
  • Mechanics of Single Name Credit Default Swaps
  • Deriving Simple CDS Pricing Model
  • Sensitivity Analysis
  • Model Assumptions

SESSION TWO

Single Name CDS II – Structural Approach

  • Review of Equity Option Pricing
  • Firm’s Value Models
  • * Merton (1974)
  • *KMV
  • *Black-Cox
  • *Duffie-Lando
  • *Lardy-Finkelstein (CreditGrades)
  • Summary of Model Assumptions
  • Reduced vs. Structural Approach

SESSION THREE

Single Name CDS III – More Tools

  • Risk Attribution
  • Unwinding Single Name CDS
  • Deriving Par CDS Spread from Cash Price
  • Mechanics of Asset Swap
  • Deriving Asset Swap Spreads from Bond Prices
  • Deriving Forward CDS Spreads

SESSION FOUR

Correlation Products – Overview

    Standard CDS Index Portfolios

    • Mechanics of Standard CDS Indices
    • Families of Standard CDS Indices
    • Correlation and Correlation Risk

    Correlation Products I – Nth-to-Default Basket Swaps

    • Overview of Nth-to-Default Basket Swaps
    • Mechanics of Nth-to-Default Basket Swaps
    • Valuation Framework
    • *Pair-wise Correlation
    • * Pricing
    • Sensitivity Analysis
    • Correlation and Nth-to-Default Basket Swap

SESSION FIVE

Correlation Products II– Synthetic CDO

  • Mechanics of Synthetic CDO and (Synthetic CDO)^n
  • Correlation Modeling
  • Compounded Correlation
  • Base Correlation
  • Volatility and Correlation Skew
  • Sensitivity Analysis

SESSION SIX

More Credit Derivatives Innovations

  • Recovery Products
  • - Zero-Recovery CDS
  • - Recovery Locks
  • - Digital Default Swap
  • Credit Options Products
  • - Pricing Credit Default Swaptions
  • - Sensitivity Analysis
  • Synthetic Products
  • - CDS on Preferred Securities
  • - CDS on Municipal Securities
  • - CDS on Asset-backed Securities
  • - CDS on Commercial Mortgage-backed Securities

Clients who register for this course will receive a complimentary 6 month subscription to the Financial Times and FT.com. The Financial Times is the world's most respected financial newspaper providing a broad assessment on finance, business and the industrial sector. Subscriptions will start within 6-8 weeks of the application process, and are limited to one per client. For questions about your subscriptions call 800-628-8088 or email uscirculation@ft.com. US and Canada enrollees only.

Lunch included for all students taking day classes.