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elearning > Credit spreads
Credit risk is one of the largest risks banks have. In this module learn about credit spreads, recovery rates and default probabilities.
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Course Summary
- 45 minutes
- 8 question multiple choice
- What credit spreads, recovery rates and default probabilities are
- How these three things are closely related
- How implied credit spreads can be calculated
- How implied default rates can be calculated
- What influences credit spreads and default rates
- The practical application to your credit exposures
Credit spreads - the details
1. Credit spreads, recovery rates and default probabilities
- What a credit spread is
- The market for credit risk
- Credit default swap prices
- Recovery rates, defined, historic data, loss given default
- Default probability, defined, historic data
2. The credit spread
- Using default probabilities and recovery rates to imply credit spreads
- Example using probability of survival and probability of default
- How recovery rates affect credit spreads
- How default probabilities affect credit spreads
- Why the implied credit spread and the market price of credit can differ
3. The default probability
- Using credit spreads and recovery rates to calculate default probability
- Example the expected loss for a portfolio
- How credit spreads affect the expected loss
- How recovery rates affect the expected loss
- What credit spreads imply about losses
- What this means for financial institutions
4. Summary
5. Test
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