ACF Academy : : Derivatives : : Credit Derivatives

Category: Derivatives

The principal objectives of this intensive two-day seminar are to:

	Explain the various credit derivatives structures and products
	Examine in detail how Credit Default Swaps (CDS) work
	Explore the latest developments including the “Big Bang” Protocol and SNAC
	Show how index products work in practice
	Provide delegates with a clear understanding of how credit derivatives can be used in practice to manage and hedge credit risk
	To provide an intuitive insight into the way in which these credit derivatives are priced
	Show how credit derivatives add value for buyers and sellers
	Discuss the regulatory implications of credit derivatives

The "Big-Bang" protocol, auction hardwiring, and the new SNAC trading conventions.



Introduction to Credit Derivatives

	Principles and functions of credit derivatives
	The credit derivatives market
	Participants and their roles
	Motivations for using credit derivatives
	Growth of the market and recent trends
	Types of credit derivatives

Credit Default Swaps and other Credit Derivatives

	Introduction to CDS
	Terms and definitions
	Credit events
	Settlement methods
	Reference and other obligations
	ISDA and CSA agreements
	The "Big-Bang" Protocol
	Auction settlement – how it works
	Determination Committees
	Backstop dates
	Restructuring: XR, MR, MM, and FR
	Successor events
	Market and trading conventions
	SNAC and standardized premiums
	Sovereign vs. other reference entities
	Distressed credits and points up-front
	Establishment of a Central CounterParty
	Other recent changes and events
	Other single name products...
	Asset swaps
	Total return swaps
	Credit spread products
	Credit-linked notes (CLNs)

Using Credit Default Swaps

	Who uses CDS’s?
	CDS applications…
	Managing credit risk exposure
	Hedging default risk
	Enhancing yield and generating income
	Providing market access
	Accessing diversified portfolios
	Implementing directional credit views
	Monetising relative credit views
	Using credit default swaps
	Arbitrage
	Curve trades
	CDS application ideas

Trading Simulation
	Trading CDS's
In this session, delegates will use the Global Trader simulator to trade and manage a book of credit default swaps. The session will explore some of the dynamics of CDS prices, as well as the practical illustration of curve risk and the SDV01.

Index Products

	The CDX and iTraxx indices
	Geographic and sector coverage
	Index construction
	Who uses indices?
	Index trading applications
	Index trading example
	Other indices e.g. ABX, LCDX, and CMBX



Pricing Credit Default Swaps

	An “intuitive” approach to CD pricing
	Credit risk and credit spreads
	Term structure of credit spreads
	Calculating CDS premiums
	The ISDA CDS Standard Model
	Bootstrapping default probabilities
	Implied default and survival probabilities
	Cumulative default rates
	Recovery rates
	Converting between premiums running and points up-front
	Marking-to-market
	The SDV01
	Obtaining CDS premiums from default probabilities
	Bootstrapping default probabilities from CDS premiums
	The Bloomberg CDSW screen

Portfolio Credit Derivatives

	The importance of correlation
	Portfolio / basket credit derivatives
	First-to-default swaps
	2nd-to-default and other variations
	Collateralised Debt Obligations (CDOs)
	Selecting assets for securitisation
	Balance sheet CDOs
	CDO structures and the role of the SPE
	Senior, mezzanine, and equity pieces
	The “waterfall” of cash flows
	Designing a CDO structure
	Synthetic CDOs
	Partial vs. fully synthetic CDOs
	Advantages of synthetic securitisation
	CDOs after the credit crunch

Pricing Portfolio Credit Derivatives

	Principles of correlation pricing
	Pricing a first-to-default credit default swap and other correlation CDS’s
	Tranches and CDOs (synthetic and cashflow)
	Pricing a Synthetic CDO

Tranched CDO and CDX Trading

	CDO and CDX tranches
	Risk / return characteristics of each tranche
	Characteristics of the equity piece
	Characteristics of the mezzanine pieces
	The impact of correlation
	Tranche pricing methodology
	The concept of delta
	Creating tranched CDO structures
	Using a tranched CDO structure

NB All practical sessions are highlighted like this:
	means a Workshop or Simulation
	means a Case study