Mastering Credit Derivatives, 2e

Part 1:- Introduction to Credit Derivatives & Applications

Chapter 1:- Introduction to Credit Derivatives

Exhibit 1:-Credit Default Swaps

Exhibit 2:-CLNs

Exhibit 3-TROR Swaps

Chapter 2 :-Credit Derivatives & Applications

Exhibit 1:-Credit Default Swap Applications, Balance Sheet, Hedging, curve credit views

Exhibit 2:-CLNs Applications

Exhibit 3-TROR Swaps applications, Balance Sheet

Chapter 3:-CDS Basis

Chapter 4:-Pricing CDS

Chapter 4:-ISDA Documentation &  Basel II Credit Derivatives Regulations

Part 2 Structured Credit Derivatives

Chapter 6:-Traunched Indices

Credit Default Swap Indices

Exhibit 1:-DJ CDX Investment Grade Index

Important Characteristics of Benchmark Indices

Determining the upfront payments

Impact of Defaults on Index Cashflows

Exhibit 2:-Impact on Default on Index

Traunches of Standard Default Swap Indices

Important characteristics of benchmark traunches

Exhibit 3:-Traunched DJ CDX NA IG

Exhibit 4:-Credit Index CPPI strategies

Chapter 7:- What is Correlation?

“One mans delta is another man’s correlation”                               

                                                            -Chris Boas

Introduction

Exhibit 1:-Portfolio Volatility Affected by Correlation

Correlation In Structured Credit Markets

Observing Default Correlation

The Hidden Meaning of Correlation in Credit Markets

Exhibit 2:-Correlation Affects the Relationship Between Volatility and Portfolio size

Exhibit 3:-Valuation in structured credit markets

Exhibit 4:-Correlation Creates Portfolio loss Distribution with fatter tails

Exhibit 5:-Implied Compound and Base Correlation

Exhibit 6:-correlation Sensitivity varies with seniority

Exhibit 7:-Traunche Equivalence – Long/short combinations

Chapter 8:-First-to-Default Baskets

Overview of Default Basket Primer

Exhibit 1:-First to Default Swap

Exhibit 2:-Basket Default Swap Premium Depends on Correlation

First-to-default basket: Investor Motivation

Exhibit 3 Investor Motivation for Basket Trading

Mergers & FTD Baskets

Exhibit 4:-Replacement language matters – Impact of a hypothetical merger between Credits 1 & 2.

Exhibit 5:-What is the impact of a Merger Worth?

Funded Baskets

Example: Ex-HiVol First to Default Basket

Ex HiVol Benchmark First to Default Basket

Chapter 9:-Cash CDO’s

Introduction

Exhibit 1:-Growth in CDO issuance

Exhibit 2:-CDO’s in the context of overall ABS Market

Exhibit:-A Comparison of collateral composition of CDO Issuance 1998 and 2004

What are Cash CDO’s?

How do Cash CDO’s work?

Exhibit 3:- How a typical Cash CDO works

Cash CDOs: A taxonomy

Understanding the basics of CDO equity returns

Rating of CDOs

Analytical Challenges in modelling cash CDOs

Chapter 10:-Synthetic CDO’s

Introduction

Exhibit 1:-Global Total Synthetic CDO Issuance

What are Synthetic CDO’s?

Exhibit 2:-How a typical CDS works

Exhibit 3:-How a typical Synthetic CDO works

Attachment & Detachment Points

Why Synthetic CDOs?

Taxonomy of synthetic CDOs

Exhibit 4:-Structure of a Typical Unfunded Synthetic CDO

Exhibit 5:-Structure of a Typical Funded Synthetic CDO

Analytical Challenges in Modelling Synthetic CDOs

New Developments in Synthetic CDOs

Exhibit 6:-Key Innovations, or Those that Show Promise

CDO Squared

CDO squared a brief history lesson

Exhibit 7:-Anatomy of a CDO Squared

Part 3  Greeks & Traunch Sensitivity

Chapter 11:-Understanding Traunche Sensitivity

Introduction

Exhibit 1:-Summary of Greeks

Traunches as options on default

Sensitivity to spread changes or delta

Exhibit 2:-Spread sensitivity

Sensitivity to spread distribution changes or ‘I-Gamma’

Exhibit 3:-Insurance Moves to the Right, Impacting both senior and subordinate traunches.

Data Migration

Exhibit 4:-Traunch Pricing Impact: Two opposite examples

Exhibit 5:-Delta Sensitivity 5 year IG DJ CDX

Exhibit 6:-Delta Sensitivity 10 year IG DJ CDX

Exhibit 7:-Delta Sensitivity over time – 5 year IG DJ CDX

Exhibit 8:-Delta Migration over time

M-Gamma or convexity

Exhibit 9:-5 yr IG – Traunche Convexity (Delta Neutral)

Exhibit 10:-10 Yr Traunche Convexity (Delta Neutral)

Exhibit 11:-Mezanine Traunche Sensitivity

Jump to Default Sensitivity

Conclusion