Credit Default Swaps
Insurance for hedging credit exposures
In a CDS contract, one party purchases credit protection from
another party to cover the loss of the face value of an asset
due to a credit event (like default)
Used to manage defaul
Yes, of course we hove heard of
shareholder value But that does
not change the fact that we put
customers ﬁrst, then workers, than
busihess partners, suppliers, and
dealers, and then shareholders.3
Porsche had alwaysbeen different.
Statements by Porsche '
Convertible Bonds and Embedded
What are Convertible Bonds?
Fixed income securities that permit the holder the right to
exchange the security for common stocks of the issuer under
The option to convert is solely
Introduction to Fixed Income
Reasons why issuers (investors) sell
(buy) Fixed Income Securities.
Bond yield measures.
How to price a bond.
Term structure of interest rates
Alternative explanations of the yield
Default and Liquidity Risk
Default Risk and Ratings
Main Ratings Companies
Moodys Investor Service
Standard & Poors
Main Rating Categories
Speculative grade (junk bonds)
Definitions of Bond Rating Classes
Sessions 7 & 8
MBS & ABS
What is Securitisation?
Securitisation is a form of financing where assets
with predictable cash flows are pooled and sold to a
specially created third party, who in turn borrows
money to finance the purchase by selling securitie
Measures of Interest Rate
Determine how bond prices change
as a result of interest rate changes.
Understand, calculate and use the
concept of duration, DV01, and
Change in Bond price as a Function of Change
Interest Rate Hedging
Used to protect a bond portfolio against
interest rate risk, which has two
Price risk results from the relationship between
bond prices and required rates of return.
Reinvestment risk results from
(Black Scholes Model)
Factors that Determine Option Value
Current value of the underlying asset
Exercise price on the option
Time to expiration on the option
Variance of ret
Bond Portfolio Management
Passive Bond Strategies
Investors do not actively seek out
trading possibilities in an attempt to
outperform the market.
Bond prices fairly determined.
Risk is the portfolio variable to control.
Based on known input
According to the Australian Securities and Investments Commission (ASIC) some Australian
banks have manipulated the Bank Bill Reference Swap Rate (BBSW). You have been asked to
evaluate the impact on Indian companies trading with and operating in Au