Credit Risk Transfer Mechanisms (FRM Part 1 2023 - Book 1 - Chapter 4)

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After completing this reading you should be able to:
- Compare different types of credit derivatives, explain how each one transfers credit risk and describe their advantages and disadvantages.
- Explain different traditional approaches or mechanisms that firms can use to help mitigate credit risk.
- Evaluate the role of credit derivatives in the 2007-2009 financial crisis and explain changes in the credit derivative market that occurred as a result of the crisis.
- Explain the process of securitization, describe a special purpose vehicle (SPV) and assess the risk of different business models that banks can use for securitized products.
0:00 Introduction
0:53 Learning Objectives
1:20 Overview of Credit Risk Management
7:09 Credit Derivatives in 2007/2009
9:04 Credit Default Swaps (CDS)
19:04 CDS Manipulation: Illustration
20:33 Collateralized Debt Obligations (CDO)
27:39 Collateralized Loan Obligations
28:01 Total Return Swap
33:15 Credit Default Swap Option
34:44 Traditional Risk Mitigation Techniques
36:48 Securitization

[@vivianna168]

thank you so much professor! As a 19-year old taking the FRM in a few months, I needed a 'college professor' to explain this to me, and you did. Wonderful job making this fascinating!!

[@analystprep]

Glad it helped! Good luck on the exam!

[@cnickolas1843]

I'm 20 and am preparing for FRM too! This channel is amazing

[@ropori_piipo]

NASDAQ did dominate the NYSE, he called it.

[@eugeneum3655]

Thank you for such informative video. I always wanted to learn and work in financial risk management field but I could never find any resource on Google that discusses the methods of credit risk management in depth like your video. I am going to watch as many videos as I can and will ace the FRM exam!

[@ashishsinha9035]

Very informative video. As usual your video gives us insight which is not covered elsewhere which is what makes it unique. For example, the fact that Credit Derivatives are OTC instruments has nowhere else been captured. Thanks for providing such nuggets. However, the size of CDS market as given in the video does not appear to be correct. Whereas you mention it as $3.68 trillion, in GARP book the figure has been given as $8.1 trillion in the second half of 2018 (Chapter 4, Book1) and as $9.577 trillion in December 2017 (Chapter 5, Book3)

[@karalove112]

where is the next chapter?

[@analystprep]

Hi. The next 2020 chapters are coming soon. You can also check out all chapters on analystprep.com.