Introduction to Credit Default Swaps (CDS)

This course introduces Credit Default Swaps (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.


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 & 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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