Credit derivatives 1: Introduction to credit risk

  • Corporate bonds, asset swaps, and z-spreads
  • Risky yield curves
  • Risk-less yield curve
  • Definition of credit derivatives
  • Comparison with other derivatives
  • Survival and default probabilities, hazard rates
  • Credit default swap, spread, and upfront quotes
  • Standard definitions of default, restructuring, and seniority
  • Bootstrap of probability curve from quoted CDS
  • Example of quoted CDS spreads
  • Credit risk hedging using credit-default swaps
  • Some historically important recovery ratios
credit01_slides

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