This course provides a fundamental understanding of the credit derivatives market and how it operates. The course explains what the products are, how they work, how market participants use them and the key terminology used in the market pace. The two major products that are explored are credit default swaps and the credit indices.

Case studies and illustrations are used to demonstrate the product applications. A basic knowledge of fixed income products and the marketplace is preferable.

Credit Default Swaps (CDS)
Defining the CDS contract
1. What they are and how they work
2. Comparing CDS contracts to conventional bonds
3. Understanding the bid/offer
4. CDS mechanics and cash flows
5. Unwinding a CDS contract – offsets vs. tear-ups
What happens if there is a Credit Event
6. What constitutes a credit event?
7. Deliverable obligations and the restructuring types (MMR vs. XR)
8. The auction as a two-stage process

CDS Execution
CDS execution and cash flow trading conventions for standard CDS contracts
9. How CDS are quoted – Par vs. quoted spreads
10. Understanding the risk sensitivities of CDS and P&L profile
11. Using the spread DV01 to analyse risk
Where do CDS spreads trade relative to cash bonds?
12. Understanding the CDS-cash market basis

Credit Indices
Contract review and trading conventions
13. Key facts and index basket construction
14. Cash flows and credit event mechanics
Trade applications
15. Buy-to-hold vs. rolling contracts