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.