Structured Credit Modeling
Understand models for assessing the value and risk of portfolio credit default swaps, tranched credit index products and various types of collateralized debt obligations.
This course is a component of the Advanced Credit Risk Professional Certificate.
CPE Credits: 14
Prerequisite knowledge:
- Knowledge of credit modeling
- Intermediate MS Excel skills
- Elementary differential calculus
- Basic probability and statistics
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Module 1: Review of Fundamentals
- Credit modeling frameworks
- Default dependence ('correlation')
- Copula functions
- Mechanics of credit default swap (CDS) contracts
Module 2: Basket Default Swaps
- Mechanics of basket trades
- First-to-default valuation and implied default correlation
- Higher order default valuation
Module 3: Collateralized Debt Obligations
- Mechanics of CDO trades: Cash-flow and synthetic structures
- Tranche valuation and implied default correlation
- Applying the large homogeneous portfolio (LHP) approximation
- Implementation of the Gaussian Copula
Module 1: CDS Portfolio Indices
- Mechanics of the standard indices
- Index valuation
- ABS, CMBS and Loan CDS Indices
Module 2: CDS Index Tranches
- Implied default correlation
- Compound correlation
- Base correlation
- Correlation skew
- Term structure effects
Module 3: CDO Risk Management
- Risks: Idiosyncratic vs systematic
- The LH+ model
- Tranche hedging
Module 4: Portfolio Credit Products and Trading Strategies
- Constant proportional portfolio insurance (CPPI)
- Credit CPPI
- Constant proportion debt obligations (CPDO)
- CDO-Squared
- Credit default swaptions
- Leveraged super-senior tranches
- Recovery swaps and locks
- Capital structure arbitrage