Course details

Credit Default Swaps and Credit Spread Options

Credit Default Swaps and Credit Spread Options


Overview/Description
Target Audience
Expected Duration
Lesson Objectives
Course Number


Overview/Description
Credit Default Swaps have emerged as the most widely used credit derivatives in the financial markets. They provide banks and other financial institutions with the means to transfer credit risk off their books and to diversify their financial portfolios. These products are also extensively used for additional yield generation through the receipt of premiums, as well as to speculate on credit spread curve fluctuations. Options on credit default swaps, known as swaptions, have become popular as an extension of swaps, which provide channels for credit spread strategies to hedge and speculate credit risk. The use of credit spread options and credit spread futures has increased the demand for credit derivatives. They are most frequently used by international banks and investment houses to manage and profit from credit events. This course provides an overview of credit default swaps, swaptions, and constant maturity credit default swaps, and also covers how they work and their typical payoff profiles. It then introduces the two categories of credit spread options: those that reference obligations with fixed credit spreads and those that reference the level of credit spread on the reference obligation. Credit spread forwards contracts are also briefly covered.

Target Audience
Financial services professionals, consultants, and sales professionals interested in providing or selling products and services to banks, investment companies, and other financial corporations, and everyone interested in creation and use of credit derivative instruments

Expected Duration (hours)
1.0

Lesson Objectives

Credit Default Swaps and Credit Spread Options

  • recognize characteristics of credit default swaps
  • select components of credit default swaptions
  • identify aspects of constant maturity credit default swaps
  • recognize characteristics of credit default swaps
  • recognize characteristics of credit spread options
  • identify options for protection against an increase in credit spread
  • identify aspects of credit spread payoffs
  • recognize characteristics of credit spread options
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