EXPANDED CONTENTS
1 A Primer on Credit Default Swaps
Credit Risk and Credit Derivatives
Pricing Methodology Based on Reduced-Form Model Approach
2 Bond Spreads and Relative Value
Swap Spread and Treasury Spread
Illustration Using the BLOOMBERG PROFESSIONAL® Service
3 The CDS Basis I: The Relationship Between Cash and Synthetic Credit Markets
The Dynamics of the Default Swap Basis
Positive and Negative Basis Situations
Market Observation of the Basis Trend
The Impact of the Basis on Trading Strategy
4 Supply and Demand and the Credit Default Swap Basis
5 The CDS Basis II: Further Analysis of the Cash and Synthetic Credit Market Differential
6 Trading the CDS Basis: Illustrating Positive and Negative Basis Arbitrage Trades
Relative Value and Trading the Basis
Factors Influencing the Basis Package
APPENDIX I Description of Bloomberg Screen CDSW
Calculating the Default Probability Curve
Calculating an Implied Issuer Par Coupon Curve (the “Risky Curve”)
APPENDIX II The Market Approach to CDS Pricing
APPENDIX III Market-Implied Timing of Default from CDS Prices
CFA INSTITUTE PROFESSIONAL DEVELOPMENT QUALIFIED ACTIVITY (7 hours)