This course provides a detailed overview of the more advanced credit derivative products from index tranche trading to credit options. The course builds on the understanding of how credit spreads and CDS contracts are valued and why and how bespoke products are traded.
- Case studies and illustrations are used to demonstrate the product applications
- A fundamental knowledge of fixed income and credit derivative products
- Understand the relationship between the credit spread, default and recovery rates
- Explain the pricing methodology behind the ISDA standard market model
- Learn how to express credit views with bespoke tranched products
- Understand the motivation behind Nth to default structures and the product dynamics
- Understand the role of credit options and how they are used in practice
This virtual course is one of the ICE Education LIVE programs. We provide two phases to the course:
1. Live Virtual Sessions: Trainer led live video sessions (as per the outline below). These are short focused sessions with practical activity and interaction throughout.
2. Post-course: The live video clinic session is scheduled for one week post course for any learning points you'd like to revisit.
All course payments must be received one day prior to the start date
|Price||£895 + VAT|
Who Should Attend
This course is aimed at anyone with an interest (whether direct or indirect) in the trading of fixed income derivatives. Delegates may include not only traders but also related functions including risk management, oversight and mid-office roles.
Session 1: CDS Valuation
- The credit triangle
- The intuitive relationship between the recovery rate, the spread and the default probability
- Senior vs. subordinated arbitrage
- The technical pricing model - ISDA
- Premium leg vs. Contingent default leg
- Bootstrapping the implied default probabilities out of the CDS curve
Session 2: Portfolio Credit Derivatives
- Tranche trading strategies using the iTraxx index family
- What is a tranche? Why are they traded?
- Tranche trading mechanics and specifications
- Attachment/detachment points
- Exploring delta and leverage
- The tranches - long or short correlation
- The effects of convexity in delta-hedged tranche trading
- The role of correlation - base vs. compound correlation
- Tranche trading and hedging
- Case study - AIG and what went wrong
- Trading off-the-run tranches -lessons to learn from JPMorgan
- Nth-to-default baskets
- What are First to Default (FTD) and nth To Default (NTD) baskets?
- Buyer and seller motivations
- Pricing baskets intuition
- Mechanics and settlement
Session 3: CDS Index Options
- The credit option building blocks - payers and receivers
- Standard terms and mechanics
- What happens if there is a default
- Why trade credit options
- Pricing tools and the risk metrics -the Greeks for credit options