IEOR E4731 Credit Risk and Credit Derivative
Xuedong He, Spring 2014
Homework Set 4
(Due Apr. 22)
Reading
Textbook: Sections 15 in Chapter 13; Sections 14 in Chapter 15; and Sections 14
in Chapter 16.
Assignment
Consider an equally weighted portfolio of 1
IEOR E4731 Credit Risk and Credit Derivative
Xuedong He, Spring 2011
Final Exam
Duration: 2 hour and 30 minutes
Return this problem sheet with your solutions. Please explain the reasoning behind
your responses: answers will not be considered sucient if th
IEOR E4731: Credit Risk and Credit Derivatives
Lecture 12: Counterparty Risk
Instructor: Xuedong He
Spring, 2014
1 / 27
Counterparty Risk
Counterparty risk is the risk that a counterparty in a nancial
contract defaults prior to the maturity of the contrac
Columbia University M.S. Program in Financial Engineering
IEOR 4731: Credit Derivatives
Instructor: Rama CONT
Teaching Assistants:
KAN Yu Hang [email protected]
Romain DEGUEST [email protected]
Lecture 9: The Gaussian copula model. Analyzing single tr
See the Disclosure Appendix for the Analyst
Certification and Other Disclosures.
APRIL 27, 2004
G L O B A L
S T R U C T U R E D
C R E D I T
R E S E A R C H
Structured Credit Products
GLOBAL
David Li
(212) 816-2679
[email protected]
New York
Ratul Roy
Columbia University M.S. in Financial Engineering
IEOR 4731: Credit Derivatives
Thursday 9:10 AM- 11:40 AM
Instructor: Rama CONT ( Oce hours: Tuesday 10.30-12.30)
Teaching Assistant: YU Hang Kan [email protected]
Syllabus and material available on Cours
Columbia University M.S. Program in Financial Engineering
IEOR 4731: Credit Derivatives
Instructor: Rama CONT
Teaching Assistants:
YU Hang Kan [email protected]
Romain DEGUEST [email protected]
Lecture 3: Risk Neutral Pricing. Basic arbitrage relation
Columbia University M.S. in Financial Engineering
IEOR 4731: Credit Derivatives
Instructor: Rama CONT
Teaching Assistant: YU Hang Kan [email protected]
Lecture 1: Default risk, credit risk and the risk structure of interest
rates.
1
Outline:
The term s
Columbia University M.S. Program in Financial Engineering
IEOR 4731: Credit Derivatives
Instructor: Rama CONT
Teaching Assistants:
YU Hang Kan [email protected]
Romain DEGUEST [email protected]
Lecture 5: Structural models of default.
1
Outline:
Capi
Columbia University M.S. Program in Financial Engineering
IEOR 4731: Credit Derivatives
Instructor: Rama CONT
Teaching Assistants:
YU Hang Kan [email protected]
Romain DEGUEST [email protected]
Lecture 6: reduced form models
1
Outline:
When default c
Columbia University M.S. Program in Financial Engineering
IEOR 4731: Credit Derivatives
Instructor: Rama CONT ( Oce hours: Tuesday 10.30-12.30)
Teaching Assistants:
YU Hang Kan [email protected]
Romain DEGUEST [email protected]
Lecture 2: Credit Deriv
Columbia University M.S. Program in Financial Engineering
IEOR 4731: Credit Derivatives
Instructor: Rama CONT
Teaching Assistants:
KAN Yu Hang [email protected]
Romain DEGUEST [email protected]
Lecture 11: Rating and structuring of CDOs. Index CDOs.
1
Columbia University M.S. Program in Financial Engineering
IEOR 4731: Credit Derivatives
Instructor: Rama CONT
Teaching Assistants:
YU Hang Kan [email protected]
Romain DEGUEST [email protected]
Lecture 4:
Credit default swaps: cash ow structure and ba
Columbia University M.S. Program in Financial Engineering
IEOR 4731: Credit Derivatives
Instructor: Rama CONT
Teaching Assistants:
KAN Yu Hang [email protected]
Romain DEGUEST [email protected]
Lecture 8: CDOs: cash ow structure and basic relations
1
Columbia University M.S. Program in Financial Engineering
IEOR 4731: Credit Derivatives
Instructor: Rama CONT
Teaching Assistants:
KAN Yu Hang [email protected]
Romain DEGUEST [email protected]
Lecture 9: Factor models for credit portfolios. Rating of
Columbia University M.S. Program in Financial Engineering
IEOR 4731: Credit Derivatives
Instructor: Rama CONT
Teaching Assistants:
KAN Yu Hang [email protected]
Romain DEGUEST [email protected]
Lecture 12: Counterparty risk. Second-generation credit
d
Columbia University M.S. Program in Financial Engineering
IEOR 4731: Credit Derivatives
Instructor: Rama CONT
Teaching Assistants:
KAN Yu Hang [email protected]
Romain DEGUEST [email protected]
Lecture 7: pricing in reduced form models
1
Outline:
Pri
IEOR E4731: Credit Risk and Credit Derivatives
Lecture 02: Market for credit risk
Notes originally written by Prof. Rama Cont
Instructor: Xuedong He
Spring, 2012
1 / 28
Credit derivatives
Derivative instruments with payoffs linked to the occurrence of a c
IEOR E4731: Credit Risk and Credit Derivatives
Lecture 04: Structural models of default.
Notes originally written by Prof. Rama Cont
Instructor: Xuedong He
Spring, 2012
1 / 46
Capital structure of a firm
The structural approach to default modeling was ini
IEOR E4731: Credit Risk and Credit Derivatives
Lecture 05: Reduced form models.
Notes originally written by Prof. Rama Cont
Instructor: Xuedong He
Spring, 2012
1 / 40
Reduced form models
Structural models have strong economic meaning but are not applicabl
IEOR E4731: Credit Risk and Credit Derivatives
Lecture 06: Pricing CDS
Notes originally written by Prof. Rama Cont
Instructor: Xuedong He
Spring, 2012
1 / 32
Pricing CDS
In this lecture, we are going to use reduced form models to price CDS We need to deci
IEOR E4731: Credit Derivatives
Lecture 07: Risk Management of CDS
Notes originally written by Prof. Rama Cont
Instructor: Xuedong He
Spring, 2012
1 / 10
Risk Management of Credit Derivatives
Suppose a dealer sells a CDS contract on FIAT to a customer who
IEOR E4731: Credit Derivatives
Lecture 08: CDS Indices, Forwards, and Swaptions
Notes originally written by Prof. Rama Cont
Instructor: Xuedong He
Spring, 2012
1 / 29
Cash Flow Structure of CDS Portfolio Indices
2 / 29
Value of the protection leg
Let T be
IEOR E4731 Credit Risk and Credit Derivative
Xuedong He, Spring 2012
Suggested Solution to Final Exam
1. (a) For the rst-to-default basket, the cash ow stream is: receive the coupon
10 150bp 0.25 = 0.0375 million at t = 0.25, receive the accrued coupon
10
IEOR E4731 Credit Risk and Credit Derivative
Xuedong He, Spring 2012
Final Exam
Duration: 2 hour and 30 minutes
Return this problem sheet with your solutions. Please explain the reasoning behind
your responses: answers will not be considered sucient if th
IEOR E4731: Credit Derivatives
Lecture 07: Options on CDS Portfolio Indices
Instructor: Xuedong He
Spring, 2013
1 / 24
Options on CDS Portfolio Indices
A CDS portfolio index option is a bilateral OTC contract to
buy or sell a specied CDS portfolio index w