December 7th 2011
This one-day course will provide a broad introduction to the markets for CDOs and CDS. The program is designed to give participants a familiarity with the basics of these two important financial instruments and insight into the structures used in these markets to better understand their investment characteristics and risks.
The morning will be devoted to cash CDOs in its entirety. The presentation will commence with a conceptual overview of CDOs, their evolution from MBS/ABS, as well as industry terms and definitions. The presentation will follow the life cycle of an arbitrage CDO from conception/formation of the SPV to liquidation of the asset portfolio and final maturity. The discussion will address a range of issues including: relative seniority of tranches, cash flow waterfall, coverage tests, asset portfolio and more. The final portion of the first session will provide similar to balance sheet CDOs.
The afternoon will begin with an introduction to Credit Default Swaps (CDS). It starts with a discussion of the basics of credit derivatives and their evolution from interest rate and total return swaps. The presentation will then review the elements of CDS contracts and their application in credit risk management. Discussion topics will include: single credit and basket default swaps, cash settlement versus physical delivery, types of credit events, contract pricing and more. The final portion of the session will look at the confluence of CDOs and CDS: synthetic CDOs. The presentation will review their evolution from balance sheet structures, contrast them with cash CDOs, and identify certain advantages that lead to the wide adoption of synthetic structures.
