Introduction to Credit Default Swaps (CDS)

This Introduction to Credit Default Swaps course introduces CDS to participants, looking at its function and mechanics.

It discusses the reasons for buying or selling protection as well as how CDS is traded and settled. It explains the different features of fixed coupon CDS and sovereign CDS.

Participants will examine what happens in the event of a default and calculate CDS implied default probabilities.

Suitability

This course is for individuals with a working knowledge of bond and credit markets.

Learning Outcomes

  • At the end of this course delegates should understand
  • Key characteristics of Credit Default Swaps (CDS)
  • How to price CDS and calculate the implied default probability
  • What happens in the event of a credit default

Course Content

  • Basics of the Credit Default Swaps (CDS) market
  • Mechanics of CDS
  • CDS market functions and participants
  • Buying and selling protection
  • Credit events
  • Physical vs. cash settlement
  • Auction process
  • Exercises: Exploring the applications of CDS
  • Fixed Coupon CDS
  • Par spread vs. fixed coupon CDS
  • Pricing fixed coupon CDS
  • Sovereign CDS
  • Before and after a credit event
  • Cheapest-to-Deliver (CTD) bond
  • Agency bonds
  • CDS Indices
  • Credit indices (CDX and iTraxx)
  • What happens to an index after a credit event
  • Pricing Credit Derivatives
  • CDS premium
  • Implied default probabilities
  • CDS value drivers
  • Exercises: Calculating CDS implied default probabilities

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