Reading 27
Credit Default Swaps
3 modules 14 min
0/3
Exam Focus
A credit default swap (CDS) is a contract between two parties in which one party purchases protection from another party against losses from the default of a borrower. For the exam, you should be able to describe CDS, as well as related securities like index CDS. You should know what a credit event is and how the different protocols for settlement work.
You should be familiar with the principles and factors that drive market pricing of CDS. Be able to describe how CDS are used to manage credit exposure, and how they can be used to profit from anticipated changes in the credit curve. You should understand how CDS are used for arbitrage to take advantage of relative mispricings of different risky securities.
Modules
- Module 27.1CDS Features And TermsDescribe credit default swaps (CDS), single name and index CDS, and the parameters that define a given CDS product. · Describe credit events and settlement protocols with respect to CDS.6 min · 2 LOS
- Module 27.2Factors Affecting CDS PricingExplain the principles underlying and factors that influence the market’s pricing of CDS.4 min · 1 LOS
- Module 27.3CDS UsageDescribe the use of CDS to manage credit exposures and to express views regarding changes in the shape and/or level of the credit curve. · Describe the use of CDS to take advantage of valuation disparities among separate markets, such as bonds, loans, equities, and equity linked instruments.4 min · 2 LOS