QUANTITATIVE TECHNIQUES
for Credit Derivatives

Course Outline

The objective of this course is to develop a solid understanding of the current framework for modelling and pricing credit derivatives. Participants will gain the mathematical and practical background necessary to apply the various models in the market and will learn about recent advances in the field.

Who The Course is For

• Quantitative analysts
• Risk managers
• Financial engineers
• Researchers

• and others who are involved in credit risk modelling in the capital markets

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Prior Knowledge

A good maths background including probability theory, basic stochastic processes, basic concepts of financial products and some knowledge of programming.

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

Credit Risk Modelling

This section describes and analyses some of the popular mathematical models for the pricing of financial derivatives in an univariate credit setting.

Fundamentals

• Components of credit risk
• Default and survival probabilities
• Instruments

Modelling

• Intensity based modelling
• Firm's value models
• Jump models

Credit Derivative Pricing

• Credit default swaps
• Calibration
• Pricing of payer and receiver swaptions on single name CDSs
• Dynamic spread generators
• Exotic option pricing on single name CDSs

Credit Index Modelling

• Black's model
• Jump models
• Pricing of payer and receiver index swaptions under advanced models
• Calibration

Day Two

Portfolio Credit Risk Modelling

This section discusses portfolio credit risk modelling. Dependency among the assets in the portfolio is crucial in the modelling and for the pricing of multivariate credit derivatives.

Default dependency and Portfolio Models

• Causes of correlation
• Joint default probabilities
• Conditional default probabilities

CDO Pricing

• Binomial model
• One factor Li Model
• CDO Pricing details
• Generic jump models for CDOs
• The Gamma CDO model
• Gaussian vs Gamma base correlation

Multivariate Index Modelling

• Correlated dynamic jump models for credit indices
• Calibration on swaption market
• Matching correlation
• Hybrids

Recent Advances

• CPPIs and CPDOs under jump models
• Assessing the gap risk under jump dynamics