Introduction to Credit Risk

Introduction Objectives What is Credit Risk ?    Default risk    Migration risk    Credit spread risks    Concentration risk    Loss distribution    Recovery rates Rating Agencies Assessing Default Risk    Scoring Model (E.Altman)    Structural Model (KMV) Credit Derivatives Securitisation What is Basle II ? Summary Glossary Solutions

Credit Derivatives I (Products)

Introduction Total Return Swaps    Mechanics    Price Scenarios    Reference Entity/Obligation Credit Default Swaps    Mechanics    Joint Probability of Default    Motivations of Counterparties Credit Linked Notes (CLNs)    Mechanics    Variations Credit Spread Basis    Valuable Indicator    Basis across Rating Categories    Trading Opportunities Regulatory Treatment    Recognition of Securing Effect    Risk Weightings    Anomalies    New BIS Guidelines Summary Glossary Solutions

Credit Derivatives II (ISDA Documentation)

Introduction ISDA Documentation 2003 ISDA Changes Credit Events Supplements Conditions to Payment    Publicly Available Information    Credit Event Notice    Grace Period Extension Physical Settlement    NIPS    NOPS    Buy-in Procedure    Mod(mod2) Restructuring Settlement Process Confirmation Summary Glossary Solutions

Collateralized Debt Obligations (CDOs)

Introduction Objectives Approach Characteristics of CDOs Life Cycle of a CDO The CDO Market Market Value CDOs    Advance Rate Mechanism    Coverage Tests    Correcting OC Tests Cash Flow CDOs    Credit Quality of the Asset Portfolio    Extended Binomial Model    Tranche Sizing    Expected Loss    Rating Assignment    Coverage Tests    Credit Enhancement Trustee Reports    Coverage Tests    Quality Tests Motives for Investors Summary Glossary Solutions Add-ins (Downloads)

Synthetic CDOs

Introduction Objectives Synthetic Structures    Risk Transfer    Credit Events Fully-Funded Structures    Principal Flows    Loss Mechanism    Premium Flows    Regulatory Treatment Partially-Funded Structures    Cash Flows    Regulatory Treatment Life Cycle of Synthetic CDO Structures Motives for Investors Benefits for Originators Synthetic CDO Transactions    Glacier Finance Ltd.    BISTRO Summary Glossary Solutions

Mortgage Backed Securities I

Introduction Objectives Characteristics    Structure    Prepayments    Credit Enhancement    Transaction Types Commercial MBS Residential MBS Analyzing Real Estate Markets    Vacancies    Rents    Mortgage Rates    Cycles    Homeownership Property Characteristics Underwriting Criteria    Debt Service Coverage (DSC)    Loan-to-Value Ratio (LTV)    Capitalization Rates    Debt-to-Income Ratio    Diversification (Herfindahl ) Monitoring MBS    WAL    Seasoning    Prepayment Speed    LTV    Arrears Management    Trustee Reports Motives    Originator    Investors Summary Glossary Solutions

Mortgage Backed Securities II

Introduction Objectives Statistics for MBS    Weighted o Coupon    Weighted o Maturity    Weighted o Loan Age Cash Flow of Mortgages    Amortization Schedule    Prepayment Risk Prepayment Math    Amortization Factor    Pool Factor    Prepayment Risk    CPR    PSA    Negative Convexity    Prepayment Models Summary Glossary Solutions

New Basel Capital Accord (Standardized Approach)

Introduction Objectives Overview Risk Weights External Credit Assessments    Multiple Assessments    Issuer vs Issue Assessments    Short- / Long-term Assessments Credit Risk Mitigation    Introduction    Simple Approach    Comprehensive Approach    Collateral Haircuts    Holding Periods    Risk Weighted Assets    Special Treatments    Guarantees & Credit Derivatives Netting Summary Glossary Solutions

New Basel Capital Accord (Part II)

Introduction Objectives Overview Asset Classes Corporates, Sovereigns, Banks    Risk weighted assets    Firm size adjustments    Specialised lending Retail    Risk weighted assets    Residential Mortgages    Revolving Retail Exposure    Other Retail Exposure Equity    Market-based approach    PD/LGD approach Transition Arrangement Assessing the risk weights    Procyclicity    Market comments Minimum requirements Glossary Solutions

Valuing Credit Risk

Introduction Objectives Approach Pricing Assumptions    Basic Pricing Logic    Arbitrage-Free Pricing    Risk Neutral Pricing    Risk-Adjusted Default Rates Risk Parameters    Survival Rates    Default Rates    Marginal Default Rates Bootstrapping Default Probabilities Modelling Transition Probabilities Constructing Credit Curves    Using Term Structure Models    Risky Term Structure Recovery Rate Conventions    Recovery of Face Value    Fractional Recovery    Equivalent Recovery Summary Glossary Solutions Add-ins (Downloads)

Credit Risk Models

Introduction Objectives Approach Rating-Based Models    Migration Behavior    Risk Estimation    Expected vs Unexpected Loss    CreditMetrics® Structural Models    Firm Value Approach    KMV Approach Reduced-Form Models    Credit Risk+®    Modelling Default Process    Economic Capital Monte Carlo Simulation    Asset Return Thresholds    Generating Scenarios    Portfolio Valuation Summary Glossary Solutions Add-ins (Downloads)

Credit Derivatives III (nth to default)

Objectives Introduction The Structure Introduction to Pricing Using Loss Distributions    Default Threshold    Expected Loss Analyze Basket Spreads    Boundaries Condition    Correlation Copula Pricing    Definition of Copula    MC Simulation with Copula Rating Approach Creating suitable baskets Motives for Investors Glossary Solutions