Credit Derivatives, Synthetic Securitization and Hybrids

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Introduction and Overview

• Credit derivatives and their predecessors
• Historical development
• Overview of instruments and markets

Credit Default Swaps

• Definitions and Mechanics
• Differences/Similarities with Asset Swaps
• Pay-out Triggers (Default Events)
• Settlement Methods
• Pricing of CDS
• Case Studies: Typical Applications of CDS (Transfer of Credit Risk, Yield Enhancement, Convertible Arbitrage, Hedging Counterparty Risk with Dynamic Credit Default Swaps)
• Small Exercise

12.00 - 13.00 Lunch

13.00 - 16.30 Credit Default Swaps (Continued)

• Basket Default Swaps
  • The Advantages of Using Basket Swaps
  • First-to-Default/Second-to-Default Swaps
  • Index default swaps (Itraxx)
• Small Exercise

Equity Default Swaps

• What is an Equity Default Swap?
• Differences between EDS and CDS
• Carry Trades with CDS and EDS
• Small Exercise

Credit-Linked Notes

• What is a Credit-Linked Note
• Examples of Credit-Linked Notes
• Structuring Credit-Linked Notes
• Leveraged Credit Linked Notes
• Case Study
• Small Exercise

Day Two

09.00 - 09.15 Recap

09.15 - 12.00 Total Return Swaps

• Mechanics and Applications of TR Swaps
• Pricing of TR Swaps
• Case Study
  • Using TR swap to create synthetic exposure to leveraged loan portfolio
• Small Exercise

Credit Options

• Options on Floating Rate Notes
• Options on Asset Swap Packages
• Credit Spread Forwards, Calls and Puts
• Credit Spread Trading Strategies
• Case Studies: Hedging Spread Risk
• Pricing of Credit Options
• Small Exercise

12.00 - 13.00 Lunch

13.00 - 16.30 Synthetic CDO’s

• Synthetic Securitization
  • Structuring of a synthetic securitization
  • Case Study: Securitization of Bank Loans Using the KfW PROMISE/PROVIDE Program
• Multi-tranche and Single-tranche Synthetic CDO’s
• CDO-squared
• Hybrid Synthetic/Cash CDO’s
• Constant Proportion Debt Obligations
• Valuation of Synthetic CDO’s
  • Structural Models
  • Reduced Form Models
  • Monte Carlo Simulation
• Example: Using Factor Copula Model to Value Selected CDO Tranches
• Basis Trading/Correlation Trading
• CDO Risk Management
  • Hedging correlation risk
  • Delta-hedging single-tranche CDO’s
• Small Exercises

Evaluation and Termination of the Seminar