CREDIT DERIVATIVES 2:
Practical Implications of Pricing

Course Outline

The accurate and consistent pricing of credit derivatives is crucial to gaining a competitive edge in today's market. The objective of this workshop is to develop a solid understanding of the current frameworks for pricing credit derivatives and to give participants the mathematical and practical background necessary to evaluate the various pricing methodologies on the market.

 

• Practical and hands-on development of the models in use for CDO evaluation
• Illustration of why the models failed in the summer of 2007
• Sensitivity analysis to test breaking points of models and structures
• Critical examination of model assumptions

• Lessons learned and how they are likely to drive future model development

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This program is eligible for 16 Continuing Education credit hours from the CFA Institute. If you are a CFA Institute member, CE credit for your participation in this program will be automatically recorded in your CE Diary.

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Day One

• Basics of pricing
• Pricing problems
  – Calculating credit spreads
  – Statistics of default
  – Statistics of recovery rates
• Market proxy based pricing
• Arbitrage based pricing
• Bond market based pricing

Workshop: Building a Credit Curve

• Pricing with rating transitions

Day Two

• Merton model and modifications

Workshop: Building a Merton Model

• Stochastic process models
• Correlation of default models

Workshop: Calculating Correlation

• Portfolio models
  – Creditmetrics
  – KMV
  – Creditgrades
  – Creditrisk+
  – Portfolio view
• Benchmarking the models