- CFA Level 2: Derivatives Part 2 – Introduction
- Introduction to Options
- Synthetic Options and Rationale
- One Period Binomial Option Pricing Model
- Call Option Price Formula
- Binomial Interest Rate Options Pricing
- Black-Scholes-Merton (BSM) Option Pricing Model
- Black-Scholes-Merton Model and the Greeks
- Dynamic Delta Hedging & Gamma Related Issues
- Estimating Volatility for Option Pricing
- Put-Call Parity for Options on Forwards
- Introduction to Swaps
- Plain Vanilla Interest Rate Swap
- Equity Swaps
- Currency Swaps
- Swap Pricing vs. Swap Valuing
- Pricing and Valuing a Plain Vanilla Interest Rate Swap
- Pricing and Valuing Currency Swaps
- Pricing and Valuing Equity Swaps
- Swaps as Theoretical Equivalents of Other Derivatives
- Swaptions and their Valuation
- Swap Credit Risk and Swap Spread
- Interest Rate Derivatives - Caps and Floors
- Credit Default Swaps (CDS)
- Credit Derivative Trading Strategies
Swap Credit Risk and Swap Spread
Current Credit Risk: The situation where one swap party is owed a payment now and the other party cannot make the payment.
Potential Credit Risk: The possibility that the other party may default in the future.
The amount at risk for default is equal to the swap's market value at any given point in time.
While swaps are over the counter, the parties can agree to a marking to market method for controlling credit risk.
Swap spread is the difference between a swap's fixed rate and an equal maturity risk free rate, such as the yield on government debt with a same maturity.
Swap rates can be quoted as a spread over equivalent risk free rates; this spread can be interpreted as a gauge of credit risk in the general market.
During times of economic turmoil, swap spreads tend to widen.
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