Course: Credit Markets and Models
Instructor: Vladimir Finkelstein
Lecture 2
Default Event in a Reduced Model
One way to interpret Eqs.(1.13) and (1.14) is to assume that default is a "sudden death" event with no return, that is a
jump.
To price a wide ra
Course: Credit Markets and Models
Instructor: Vladimir Finkelstein
Lecture 13
Pricing Counterparty Risk
Every time two counterparties enter an over-the-counter deal, both of them assume each others credit risk. This
risk also exists when one transects thr
Course: Credit Markets and Models
Instructor: Vladimir Finkelstein
Lecture 12
Generating Default Times Using Copulas
One can use Monte Carlo simulation to price CDO tranches. In order to do that we need to generate correlated
default times that will be ca
Course: Credit Markets and Models
Instructor: Vladimir Finkelstein
Lecture 11
Prior to the crisis of 2008 Collateralized Debt Obligations was the fastest growing class of credit derivatives
structured products. In 2003 the total notional of synthetic CDOs
Course: Credit Markets and Models
Instructor: Vladimir Finkelstein
Lecture 10
Cross-Currency Swaps and Forwards
In a typical Cross-Currency swap, counter parties exchange floating coupon payments with an initial and final
(at maturity) exchange of notiona
Course: Credit Markets and Models
Instructor: Vladimir Finkelstein
Lecture 9
Brief History of Connecting Equity and Credit
Merton, 1974
Asset of a firm is a sum of present values of firms equity and debt.
Stock is modeled as a European call on the firms
Course: Credit Markets and Models
Instructor: Vladimir Finkelstein
Lecture 8
Options on CDS Indexes
This market has been evolving very fast. Currently we have a two-way market for European options on IG
and HY in US and Europe, and to execute an option tr
Course: Credit Markets and Models
Instructor: Vladimir Finkelstein
Lecture 7
Pricing Credit Derivatives with uncertain payoff
Similar to the interest rate case, in order to price CD securities, we need to calculate present values
for future payoffs. We ar
Course: Credit Markets and Models
Instructor: Vladimir Finkelstein
Lecture 6
Below in our analysis we will assume that
1. ZCB and RZCB0 of any maturity are readily available for trading
2. There is no bond basis in funding, which means that all the securi
Course: Credit Markets and Models
Instructor: Vladimir Finkelstein
Lecture 5
Bond Spread Vs. Par Bond Spread for PFA
In order to quote bond prices and analyze relative value, practitioners often use a nave approach (recovery of PPV
leads to the same resul
Course: Credit Markets and Models
Instructor: Vladimir Finkelstein
Lecture 4
Approximation for the price of a bond with a continuously paid coupon.
Just as we did in L3 for a CDS, assuming that a bond coupon is paid continuously and the IR and DI
curves a
Course: Credit Markets and Models
Instructor: Vladimir Finkelstein
Lecture 3
Credit Default Swaps (CDS)
CDS is a basic credit derivatives instrument:
ABC is long default protection (short Reference Credit) up till time T
XYZ is short default protection (
Course: Credit Markets and Models
Instructor: Vladimir Finkelstein
Lecture 1
Introduction to Credit Markets
The crisis of 2007-2008 and everything what happened after that demonstrated clearly that credit risk and
exposures in all types of tradable securi