elearning > Credit default swaps

Learn about the following:

How credit default swaps work. The basic terminology of credit trading.
How credit default swaps can be used. The risks and problems with credit default swaps.

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Course Summary

• 45 minutes
• 10 question multiple choice test
• How credit default swaps work
• The basic terminology of credit trading
• How credit default swaps can be used
• The risks & problems with credit default swaps

Credit Default Swaps - the details

1. How credit default swaps work

• Market prices, what they tell you
• Reference entity
• Buying and selling protection
• Fixed payment, how it is calculated and who pays
• Floating payment, trigger
• Credit events
• Floating payment amounts, cash and physical settlement

2. Using credit default swaps

• Unfunded risk, example
• Income, credit delta, loss given default
• How the CDS price affects the trade value
• Basis trades, the difference between the CDS price and cash spreads
• Positive and negative basis trades, example
• Relative value trades, example

3. Risks using credit default swaps

• Reference entity credit
• Risks for protection buyer and seller
• Control using limits
• Counterparty credit exposures
• Control using collateral
• Operational risk (confirmations, valuation, documentation, trade errors)

4. Summary

5. Test