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Table Of Contents

1. Introduction
2. The credit default swap
Credit events
Settlement following credit events
Monetizing CDS contracts
Counterparty considerations
Accounting for CDS
3. Marking CDS to market: CDSW
Default probabilities and CDS pricing
The Shape of Credit Curves
Forwards in credit
Summary
Risky Annuities and Risky Durations (DV01)
5. The ISDA Agreement
Standardized documentation
The new CDS settlement protocol
CDX Note settlement procedures
Succession events
6. The importance of credit derivatives
7. Market participants
Part II: Valuation and trading strategies
Decomposing risk in a bond
Par-equivalent credit default swap spread
Methodology for isolating credit risk in bonds with embedded options
9. Basis Trading
Understanding the difference between bonds and credit default swap spreads
Trading the basis
10. Trading Credit Curves
Drivers of P+L in curve trades
Curve trading strategies
1. Equal-Notional Strategies: Forwards
2. Duration-weighted strategies
3. Carry-neutral strategies
Different ways of calculating slide
Calculating breakevens
The Horizon Effect
Changing Risky Annuities over the Trade Horizon
A worked example
Horizon Effect Conclusion
11. Recovery rate and curve shape impact on CDS valuation
Intuition
CDS curve shape impact
Recovery rate impact
Assumptions at contract inception
Worked examples
12. Trading credit versus equity
Relationships in equity and credit markets
Finding trade ideas
A worked trade recommendation
13. Trading CDS against equity puts19
Part III: Index products
Introduction
Mechanics of the CDX and iTraxx indices
Basis to theoretical
Comparing on-the-run and off-the-run basis
CDX and iTraxx indices
History of US CDS Indices
15. CDX and iTraxx options
Product description
Basic option strategy payoff diagrams
Using options to express a spread view
Using options to express a volatility view
Combining spread and volatility views
Option trading strategies
The practical side to trading options
16. Trading credit volatility
Defining volatility
Delta-hedging
The returns from delta-hedging in credit
Historical analysis
Option glossary
17. Tranche products
What is a tranche?
Why are synthetic tranches traded?
The mechanics of trading tranche protection
The role of correlation
Pricing tranches
Other products
Part IV: Other CDS products
Overview
Comparing CDS contracts across asset classes
Similarities and differences between CDS and LCDS
Participants
Settlement following a credit event
Modifications to LSTA transfer documents
Rating agency approach to LCDS in structured credit
Spread relationship between loans and LCDS
19. Preferred CDS
Preferred stock CDS contracts differ from the standard CDS contract
PCDS versus CDS
Overview of preferred stock issuance and market
20. Profiting from views on recovery rates
Recovery Rate Lock
Digital Default Swaps
21. Other credit default swap products
Credit linked notes
First-to-default baskets35
Conclusion
Appendix I: JPMorgan CDSW Example Calculations Model
Appendix II: How to get CDX and iTraxx data
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JPMorgan CDS Handbook Dec2006

JPMorgan CDS Handbook Dec2006

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Published by: dummyabc2010 on Jun 09, 2011
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