Structured Credit Modeling

New York Institute of Finance

How long?

  • 2 days
  • in person, online

What are the topics?

New York Institute of Finance

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Who should attend

  • Quantitative analysts
  • derivatives researchers and traders
  • credit risk managers
  • credit analysts and researchers.

About the course

Understand models for assessing the value and risk of portfolio credit default swaps, tranched credit index products and various types of collateralized debt obligations.

This course is a component of the Advanced Credit Risk Professional Certificate.

Prerequisite knowledge:

  • Knowledge of credit modeling
  • Intermediate MS Excel skills
  • Elementary differential calculus
  • Basic probability and statistics

CURRICULUM

Day 1

MODULE 1: REVIEW OF FUNDAMENTALS

  • Credit modeling frameworks
  • Default dependence ('correlation')
  • Copula functions
  • Mechanics of credit default swap (CDS) contracts

MODULE 2: BASKET DEFAULT SWAPS

  • Mechanics of basket trades
  • First-to-default valuation and implied default correlation
  • Higher order default valuation

MODULE 3: COLLATERALIZED DEBT OBLIGATIONS

  • Mechanics of CDO trades: Cash-flow and synthetic structures
  • Tranche valuation and implied default correlation
  • Applying the large homogeneous portfolio (LHP) approximation
  • Implementation of the Gaussian Copula

Day 2

MODULE 1: CDS PORTFOLIO INDICES

  • Mechanics of the standard indices
  • Index valuation
  • ABS, CMBS and Loan CDS Indices

MODULE 2: CDS INDEX TRANCHES

  • Implied default correlation
  • Compound correlation
  • Base correlation
  • Correlation skew
  • Term structure effects

MODULE 3: CDO RISK MANAGEMENT

  • Risks: Idiosyncratic vs systematic
  • The LH+ model
  • Tranche hedging

MODULE 4: PORTFOLIO CREDIT PRODUCTS AND TRADING STRATEGIES

  • Constant proportional portfolio insurance (CPPI)
  • Credit CPPI
  • Constant proportion debt obligations (CPDO)
  • CDO-Squared
  • Credit default swaptions
  • Leveraged super-senior tranches
  • Recovery swaps and locks
  • Capital structure arbitrage

WHAT YOU'LL LEARN

  • Develop a sound understanding of CDO structures
  • Infer implied default correlation from basket default swap prices
  • Calculate survival curves for CDO tranches
  • Measure risk sensitivities of CDO tranches
  • Learn how to build a variety of models to price portfolio credit risk

Structured Credit Modeling at New York Institute of Finance

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