Fundamentals of Credit Default Swaps: An Overview of CDS Markets

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Credit risk has existed since the first loan. This may account for the incredible growth of the credit default swap or CDS market – estimated at $40-$70 trillion in notional value – and lets someone trade the 'pure' credit risk embedded in so many different securities as a separate contract.

While CDS is the bedrock product of the credit derivatives market, the interrelated nature and lack of transparency of the CDS market also has been blamed for the global credit crisis. Recent events, as well as initiatives by clearing platforms, have focused on creating greater transparency and on lowering systemic risk by migrating CDS from an OTC to an Exchange-traded model – where many transactions would be cleared through clearinghouses.

Course: This one-day course will provide an overview of the CDS markets and how market participants use this product to express a view on a credit, or to hedge an undesirable credit risk.

Compelling Topics Include:

  • Why do market participants use it
  • Unique characteristics of CDS
  • Standardization of CDS products
  • Counter party risk
  • Terms of CDS contract
  • Using CDS to maximize any portfolio management strategy
  • Insights from decomposing a risky corporate bond into its now liquid component
  • Elements of a default free instrument, plus a receiver swap, plus a CDS
  • Pricing, evaluation and liquidity
  • How CDS provides liquidity by eliminating the need for repo
  • How CDS solves small names, reduced liquidity, non-existent paper, and choice of tenors denominated in the currency of your choice
  • Five applications for trading CDS:
  • Bi-directional trading in any credit
  • Default timing risk
  • Basis trading
  • Trading signal
  • Building blocks – portfolio theory
  • Settlement
  • Credit events
  • Regulator and market participant concerns

Class Size: Registration is limited to approximately 15-20 participants to promote student participation and interaction.

Who Should Attend: Asset managers, hedge fund managers, firm and exchange staffs, and regulators.

Level: Intermediate. A prior understanding of the bond market would be helpful, although not required.

Cost: New York, Chicago and Washington DC $495 Early-bird | $550 Standard registration
Los Angeles and San Francisco $550 Early-bird | $ 600 Standard registration
Complimentary morning and afternoon
refreshment breaks are provided. Lunch on own.

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