Credit Default Swaps

Day One

Product mechanics - Credit events:

• Case Study 1 – bankruptcy – Selecta Group B.V. (European vending machines)

• Case Study 2 – bankruptcy – Matalan Finance plc (UK clothing value retailer)

• Case Study 3 – failure to pay – Casino Guichard-Perrachon SA (French food retailer)

• Case Study 4 – failure to pay – Pizzaexpress Financing 1 PLC (UK restaurant chain)

• Deep dive on restructuring credits events – maturity limitation, restructuring bucketing and economic implications

• Case Study 5 – restructuring – Norske Skogindustrier ASA (European newsprint and magazine paper manufacturer)

• Deep dive on governmental intervention credit events and asset package delivery (including for sovereign CDS)

• Case Study 6 – restructuring / governmental intervention – Banco Popular Espanol SA (Spanish bank)

• Sovereign CDS credit events

• Case Study 7 – restructuring – The Hellenic Republic

• Case Study 8 – failure to pay – The Russian Federation

• Credit event determination – ISDA Determinations Committee

• Settlement – CDS auction process

• Case Study 9 – Selecta Group B.V. auction results

• Contract conventions – standardized coupons, roll dates and maturities, recovery rates used to calculate CDS upfront amounts

• Calculating CDS upfront amounts and CDS valuation. Extracting survival probability curve from CDS curve

• Case Study 10 – Banca Monte Dei Paschi (Italian bank) – Calculating CDS upfront, subsequent market to market valuation and sensitivity parameters (CS01 and recovery delta)

• Bloomberg CDSW tool – ISDA Standard Model

• Applications – sell side and buy-side; expressing credit views; hedging bond portfolios; pair trades; CLNs; curve trades; hedging loan portfolios

• Opportunities and risks in single name CDS – orphaning, succession, leveraged buyouts, deliverability in corporate restructuring credit events, curve shape behaviour (investment grade, high yield and distressed)

• Live Case Study 11 – Intrum (European credit management services firm, purchasing and servicing NPLs)

• Capital structure opportunities. Linking listed equity, equity implied volatility and CDS market information

• Case Study 12 – Merton-style model applied to Glencore (commodities firm)

Day Two

Index CDS

• Product mechanics

• Index splitting into defaulted single name CDS and version “n” index following credit event on an index constituent

• Case Study 13 – Selecta Group B.V. credit event and impact on iTraxx Europe Crossover Series 29

• Index skew – calculation, historical range and trading

• Case Study 14 – Calculating skew for iTraxx Europe Financial Senior

• Selection criteria for CDS index constituents

• Trading volumes and notional outstanding for major CDS indices

• Case Study 15 – Using index CDS to hedge market directional risk for a diversified credit portfolio comprising corporate bonds (across IG, financials, HY and distressed) and single name CDS positions

CDS Portfolio Risk Management

• Key risk metrics – CS01, CS100, DTS, jump risk, theta, curve risk, recovery delta

• Case Study 16 – Risk analysis of a CDS portfolios

• Rolldown P&L – estimating rolldown P&L on an impending roll date

• Case Study 17 – Example P&L rolldown calculation

Index CDS Options

• Product mechanics – payers and receivers

• Market participants and common strategies

• Break-evens and treatment of defaults

• Case Study 18 – CDS index options pricing tool

• Greeks

• Implied volatility term structure and skew in index CDS options

• Bullish, bearish and range-bound options strategies – spreads, risk reversals, straddles, strangles, butterfly, 1x2s

• Case Study 19 – Using index CDS options to manage tail risk for an asset manager (hedge fund or traditional)

• Case Study 20 – Using index CDS options to generate additional income for a traditional asset manager

• Case Study 21 – Using index CDS options to manage CVA market-to-market risk and capital ratio volatility for a bank

• Case Study 22 – Using index CDS options to lower Solvency Capital Requirement (SCR) and to reduce Solvency 2 ratio credit spread sensitivity for an insurance company using Solvency 2 internal model

CDS Infrastructure Considerations

• Role of DTCC for trade matching, novations and consents

• Mandatory and voluntary central clearing of CDS

• Case Study 23 – What ICE Clear Credit offers for central clearing of CDS

• Price verification services