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  • Credit Default Swaps: Ajay Kumar Assignment

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    This document provides an overview of credit default swaps (CDS). It begins with a 3 sentence description of CDS as privately negotiated bilateral contracts where the buyer makes periodic payments to the seller in exchange for compensation if a credit event occurs on the underlying security, which can be a corporate entity, asset-backed security, or multiple assets. It then provides a high-level diagram of the CDS transaction process and describes the key stages of the trade lifecycle from pre-trade analysis through expiration. Finally, it briefly outlines pricing models and common CDS indices used in the market.

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    A ppt for beginners on Credit Default Swaps

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    CDS

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    This document provides an overview of credit default swaps (CDS). It begins with a 3 sentence description of CDS as privately negotiated bilateral contracts where the buyer makes periodic payments to the seller in exchange for compensation if a credit event occurs on the underlying security, which can be a corporate entity, asset-backed security, or multiple assets. It then provides a high-level diagram of the CDS transaction process and describes the key stages of the trade lifecycle from pre-trade analysis through expiration. Finally, it briefly outlines pricing models and common CDS indices used in the market.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
    11 views8 pages

    Credit Default Swaps: Ajay Kumar Assignment

    Uploaded by

    Ajay Kumar
    This document provides an overview of credit default swaps (CDS). It begins with a 3 sentence description of CDS as privately negotiated bilateral contracts where the buyer makes periodic payments to the seller in exchange for compensation if a credit event occurs on the underlying security, which can be a corporate entity, asset-backed security, or multiple assets. It then provides a high-level diagram of the CDS transaction process and describes the key stages of the trade lifecycle from pre-trade analysis through expiration. Finally, it briefly outlines pricing models and common CDS indices used in the market.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    Download as pptx, pdf, or txt
    of 8

    May 2016

    CREDIT DEFAULT
    SWAPS
    AJAY KUMAR
    Assignment
    Associate Training 2016

    Agenda
    Description of CDS

    Trade Life Cycle

    Pricing

    Pricing Models

    Description of CDS
    A Credit Default Swap is a kind of insurance against credit risk.

    Privately negotiated bilateral contract


    Buyer of protection makes periodic payments to seller of
    protection
    Seller of buyer pays compensation to buyer if a credit
    event occurs
    The underlying security can be either Corporate Reference
    3

    Entity, Asset Backed Security, multiple assets or an

    CDS High Level Over-view


    SELLER
    ( Insurance)

    Fund 2

    BUYER (Fund 1)

    SETTLEMENT
    PROCESS

    CDS Expiration
    Cash / Physical
    Settlement on Credit
    Event

    Trade Life Cycle of CDS


    Pre Trade Life Cycle

    PB

    Post Trade Life Cycle

    Analysis

    Trade Date

    Pricing

    Effective Date

    Ordering

    Settlement Date

    Compliance and
    Risk

    Credit Event

    Exchange / OTC
    Venue

    Termination /
    Expiry

    Pricing Model (static)

    Year

    Probability of
    Default

    Probability of
    Survival

    5%

    95%

    7%

    88%

    Year

    Premiu
    m
    Outgoin
    g

    Discoun
    ted

    Default
    Incomin
    g

    Discoun
    ted

    -4

    -3.9

    4.9

    -3.8

    -3.6

    6.7
    Coupon is 4%;
    Interest Rate is 2 %

    Pricing Model (dynamic)

    Pricing Info
    CDX (US)

    liquid baskets of names covering North American


    Investment Grade, High Yield, and EM single name
    CDS

    Itraxx

    liquid baskets of names covering Euro, Asia,


    Australia and Japan.

    LCDX
    (US)

    North American benchmark for first lien leverage


    loan CDS.

    LevX

    European benchmark for leveraged loans CDS.

    ABX (US)

    The 20 most liquid CDS on US home equity ABS.

    CMBX
    (US)

    A synthetic index referencing 25 commercial MBS

    MCDX(US These indices refer to U.S. municipal credits


    )
    covering revenue and general obligations.
    SovX
    8

    Family of sovereign CDS indices covering countries


    across the globe.

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