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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
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