Credit Derivatives: Pricing and Operational Issues


Overview/Description
Target Audience
Expected Duration
Lesson Objectives
Course Number


Overview/Description
Credit derivatives were introduced in the early 1990s and have been widely adopted as a means for transferring credit risk exposure from one market participant to another. Before this time, these products were primarily used by banks to reduce the credit risk inherent in their loan portfolios. Credit derivatives have since evolved to include an array of different structured products that can be greatly tailored to the user's specific needs, and are used by a variety of entities wishing to hedge, speculate, or profit from arbitrage. By 2005, the growth of credit derivatives outgrew the processing capabilities of firms offering these products, both in terms of technology and people. These products are highly complex to price, and human errors and system failures can lead to enormous financial losses. This course introduces the general risks generated by credit derivatives, including credit risks, default risks, modeling, and legal risks. It briefly covers some pricing techniques for several widely used credit derivatives, including credit default swaps, asset swaps, and bond options. The course concludes with an overview of operational issues, such as technology requirements and testing procedures, as well as the transaction process and issues arising from unconfirmed trades.

Target Audience
Financial services professionals, consultants, and sales professionals interested in providing or selling products and services to banks, investment companies, and other financial corporations, and everyone interested in creation and use of credit derivative instruments

Expected Duration (hours)
1.0

Lesson Objectives

Credit Derivatives: Pricing and Operational Issues

  • identify credit derivatives risks
  • describe general approaches and identify considerations to credit derivatives pricing
  • identify credit derivatives risks, approaches, and considerations
  • describe credit default swap pricing using static valuation
  • describe asset swap pricing using static valuation
  • describe bond option premium pricing
  • describe credit default swap pricing using static valuation, asset swap pricing using static valuation, and bond option premium pricing
  • identify the testing procedures for valuation models
  • identify transaction process and operational risks
  • identify testing procedures for valuation models and transaction process and operational risks
  • Course Number:
    fini_11_a07_bs_enus