Chapter 5: Credit Derivatives

In this section

• Basics of Credit Default Swaps
  Basics of Credit Default Swaps (CFA Level 1): Test Your Knowledge: Basics of Credit Default Swaps, Which of the following best describes the primary, and When a credit event occurs under a CDS. Key definitions, formulas, and exam tips.
• Single-Name, Index, and Basket Swaps
  Single-Name, Index, and Basket Swaps (CFA Level 1): Single-Name CDS, Mechanics in a Nutshell, and Why Use Single-Name CDS?. Key definitions, formulas, and exam tips.
• Total Return Swaps and Credit-Linked Notes
  Total Return Swaps and Credit-Linked Notes (CFA Level 1): Basics of Total Return Swaps, High-Level Concept, and Mechanics and Cash Flows. Key definitions, formulas, and exam tips.
• Uses and Risks of Credit Derivatives
  Uses and Risks of Credit Derivatives (CFA Level 1): Key Uses of Credit Derivatives, Hedging, and Speculation. Key definitions, formulas, and exam tips.
• Credit Events and Settlement Mechanisms
  Credit Events and Settlement Mechanisms (CFA Level 1): Understanding Credit Events, ISDA and the Standardization of Credit Events, and Key Types of Credit Events. Key definitions, formulas, and exam tips.
• Credit Spread Options
  Credit Spread Options (CFA Level 1): Understanding Credit Spread Options, Why Are Credit Spread Options Useful?, and Payoff Structures and Examples. Key definitions, formulas, and exam tips.
• Credit Derivatives in Emerging Markets
  Credit Derivatives in Emerging Markets (CFA Level 1): Market Structure and Participants, Common Motivations, and Liquidity, Transparency, and Regulatory Gaps. Key definitions, formulas, and exam tips.
• Correlation and Risk in Credit Portfolios
  Correlation and Risk in Credit Portfolios (CFA Level 1): Systematic vs. Idiosyncratic Risk, Default Correlation and Multi-Name Credit Derivatives, and Role of Correlation. Key definitions, formulas, and exam tips.
• Synthetic CDO Structures
  Synthetic CDO Structures (CFA Level 1): Key Building Blocks, Tranche Subordination, and SPV (Special Purpose Vehicle). Key definitions, formulas, and exam tips.
• Credit Valuation Adjustment (CVA) for Credit Derivatives
  Credit Valuation Adjustment (CVA) for Credit Derivatives (CFA Level 1): What Is CVA?, Key Components of CVA, and Timeline Visualization. Key definitions, formulas, and exam tips.
• Regulatory Capital Requirements for Credit Derivatives
  Regulatory Capital Requirements for Credit Derivatives (CFA Level 1): Understanding the Regulatory Capital Landscape, Basel III and Capital Adequacy, and Risk-Weighted Assets (RWA) for Credit Derivatives. Key definitions, formulas, and exam tips.
• CDS Index Tranches
  CDS Index Tranches (CFA Level 1): Tranche Mechanics, Why Tranching?, and Role of Default Correlation. Exam-focused explanations with key terms and takeaways.
• CDS on Asset-Backed Securities
  CDS on Asset-Backed Securities (CFA Level 1): Key Features and Structural Elements, ABS-Specific Credit Event Definitions, and Risk Mitigation and Speculative Uses. Key definitions, formulas, and exam tips.
• Counterparty Exposure in CDS Trading
  Counterparty Exposure in CDS Trading (CFA Level 1): CDS contract typically requires daily marking-to-market. What and What is the principal advantage of using a. Key definitions, formulas, and exam tips.
• Use of Credit Derivatives in Securitization
  Use of Credit Derivatives in Securitization (CFA Level 1): Basics of Securitization, Role of Credit Derivatives in Securitization, and Synthetic Securitization: Concept and Mechanics. Key definitions, formulas, and exam tips.