信用衍生性商品 Credit Derivatives - dwfutures.com

信用衍生性商品

Credit Derivatives

曾启诠[email protected]

2012/12/20

www.eurexchange.com 2

大纲 Agenda

信用评级 Credit Ratings信用利差 Credit Spread信用衍生性商品 Credit Derivatives信用违约交换 Credit Default Swap (CDS)总收益互换 Total Return Swap (TRS)信用联结票据 Credit Linked Note (CLN)抵押债务债券担保债务凭证

Collateralized Debt Obligation (CDO)固定比例债务债券

Constant Proportion Debt Obligation (CPDO)固定比例投资组合保险债券

Constant Proportion Portfolio Insurance (CPPI )双币别衍生品 Quanto双币别衍生品交换 Quanto Swap


Credit Ratings

信用评级


信用评级公司 Credit Rating Agencies

Standard & Poor's (S&P) (40%): USA

Moody's (40%): USA

Fitch Group (15%): 50%USA (Hearst Corporation) and 50% France (FIMALAC )

Source: DTCC, ISDA


信用评级 Credit Ratings

IG

Investment

Grade

IG

Junk

High Yield

HY


投资级/垃圾级债券 Investment Grade / Junk Bonds

A bond is considered Investment Grade or IG if its credit rating is BBB- or higher by Standard & Poor's or Baa3 or higher by Moody's.

Bonds that are not rated as investment-grade bonds are known as High Yield bonds or more derisively as Junk bonds.

Source: DTCC, ISDA


标准普尔国际评等 Standard & Poor's Foreign Ratings


标准普尔3A级评等Standard & Poor's AAA Rating Countries


标准普尔中国评等 Standard & Poor's China Rating: AA-

http://www.standardandpoors.com/ratings/sovereigns/ratings-list/en/us/?subSectorCode=39


标准普尔一年期全球企业破产机率S&P’s One-Year Global Corporate Default Rates (%), 1981-2008

One-Year Global Corporate Default Rates (%)

0.00 0.00 0.02 0.03 0.05 0.06 0.08 0.16 0.28 0.28 0.68 0.89 1.532.44

7.28

9.97

22.67

0

5

10

15

20

25

AAAAA+

AAAA-

A+ A A-

BBB+BBB

BBB-BB+ BB

BB-B+ B B-

CCC to C


Credit Spread

信用利差


信用利差 Credit Spread

Consider a corporate bond matured T years from nowr: risk free rates: credit spreadp: default probabilityR: recovery rate1 – R = Loss Given Default (LGD)

1 dollar matured T years from nowprobability = p, Default, get R back probability = 1 - p, No Default, get 1 back

Present value of 1, T years from now is EXP(-(r+s)*T)

EXP(-(r+s)*T) = (1-p)*EXP(-r*T) + p*R*EXP(-r*T)



EXP(-(r+s)*T) = (1-p)*EXP(-r*T) + p*R*EXP(-r*T)= EXP(-r*T) - p*EXP(-r*T) + p*R*EXP(-r*T)= EXP(-r*T)*(1 – p + p*R)

EXP(-r*T) * EXP(-s*T) = EXP(-r*T)*(1 - p*(1-R))EXP(-s*T) = 1 - p*(1-R)-s*T = LN(1 - p*(1-R))

s = -1/T * LN(1 - p*LGD)



s = -1/T * LN(1 - p*LGD)

Bigger Default ProbabilityBigger Credit Spread

Bigger Loss Given DefaultBigger Credit Spread

Longer MaturitySmaller Credit Spread


Credit Derivatives

信用衍生性商品


信用衍生性商品 Credit Derivatives

Credit Derivatives’ prices depends on Credit conditions.

Credit Risk Management

Credit Risk Trading


信用衍生性商品 Credit Derivatives

Unfunded – without principal

Funded – with principal


信用衍生性商品 (无本金) Credit Derivatives - Unfunded

Credit default swap (CDS)

Total return swap (TRS)


信用衍生性商品 (有本金) Credit Derivatives - Funded

Credit linked note (CLN)

Collateralized Debt Obligation (CDO)

Constant Proportion Debt Obligation (CPDO)

Constant Proportion Portfolio Insurance (CPPI)


Credit Default SwapCDS

信用违约交换


信用违约交换 Credit Default Swap (CDS)

A Credit Default Swap (CDS) is a bilateral agreement designed explicitly to shift credit riskbetween two parties.

In a CDS, one party (protection buyer) pays a periodic fee to another party (protection seller) in return for compensation for default (or similar credit event) by a reference entity.


信用违约交换结构 CDS Mechanics


信用违约交换结构 (事件发生前) CDS Mechanics – pre Credit Event


信用违约交换结构 (事件发生后) CDS Mechanics – post Credit Event


信用违约交换利差 CDS Spread

If the CDS spread of XYZ Corp is 50 basis points, or 0.5% (1 basis point = 0.01%), then an investor buying $10 million worth of protection from ABC Bank must pay the bank $50,000 per year.

$10,000,000 X 0.0001 X 50 = $50,000

$1000 per basis point for $10 million notional CDS


信用违约交换强化金融体制 CDS strengthen the financial system

CDS enable banks to transfer risk to other risk takers, so banks can make more loans.

CDS help distribute risk widely throughout the system and thus prevent large concentrations of risk that otherwise would occur.

CDS provide important information about credit conditions, helping bankers and policymakers to supervise traditional banking activities.

CDS serve a valuable signaling function—CDS prices produce better and more timely information.


信用违约交换 (合约) CDS contract

a confirmation referencing the credit derivatives definitions as published by the International Swaps and Derivatives Association (ISDA)

reference entityreference obligationeffective date and scheduled termination datecalculation agent credit events deliverable obligation characteristics premium payments


目标主体 Reference Entity

The Reference Entity is the party on which CDS is written.

For the simplest (single-name) form of CDS, the reference entity is an individual corporation or government.


目标债权 Reference Obligation

Unsubordinated corporate bondGovernment bond.


信用事件 Credit Event

With regard to credit events, the confirmation of a CDS deal specifies a standard set of events, one of which must occur before the protection seller compensates the buyer.

The parties to the deal decide which of those events to include and which to exclude.


信用事件 Credit Events

Failure to pay

Bankruptcy

RestructuringCoupon reductionMaturity extension

Repudiation or Moratorium

Obligation Acceleration and Obligation Default


清算 Settlement

Physical settlement: The CDS seller pays the buyer par value, and in return takes delivery of a debt obligation of the reference entity.

Cash settlement: The CDS seller pays the buyer the difference between par value and the market price of a debt obligation of the reference entity.


收覆率 Recovery Rates

CDSRecovery Rate = 40%

LCDS (Loan CDS)Recovery Rate = 70%


收覆率拍卖 Recovery Rate Auctions

International Swaps and Derivatives Association (ISDA)

Source: DTCC, ISDA


信用违约交换 (利差与破产机率)CDS Spread and Probability of Default

Consider a 1-year CDS contract and assume that the total premium is paid up frontLet S: CDS spread (premium), p: default probability, R: recovery rate

The CDS buyer expects to pay = SHis expected pay-off = (1-R)pWhen two parties enter a CDS trade, S is set so that the value of the swap transaction is zero

S = (1-R)p ↔ S / (1-R) = pIf R = 40%; S = 500 bp ↔ p = 8.3%.If R = 0, S = p = 5%


Bloomberg WCDS (全球CDS评价 World CDS Pricing)

Source: DTCC, ISDA


Source: DTCC, ISDA

Bloomberg WCDS (全球CDS评价 World CDS Pricing)


Bloomberg CDSD (利差曲线 CDS SPREAD CURVE)


Bloomberg CDSW (计算器 CDS Calculator)

Market Spread

Upfront payment

Accrued Interest

CDX spread


Bloomberg CDSH (历史利差 CDS Historical Spreads)

Source: DTCC, ISDA


欧猪五国 PIIGS CDS – 2011/04/20

10Y CDS

Greece: 1240bp

Portugal: 661bp


欧债危机 European Sovereign CDS – 2012 October

10Y CDS


毛名目本金 Gross Notional

Gross notional values are the sum of CDS contracts bought (or equivalently sold) for all Warehouse contracts in aggregate, by sector or for single reference entities displayed.

Aggregate gross notional value and contract data provided are calculated on a per-trade basis. For example, a transaction of $10 million notional between buyer and seller of protection is reported as one contract for $10 million gross notional, as opposed to two contracts for $20 million notional.


净名目本金 Net Notional

Net notional values with respect to any single reference entity is the sum of the net protection bought by net buyers (or equivalently net protection sold by net sellers).

Net notional positions generally represent the maximum possible net funds transfers between net sellers of protection and net buyers of protectionthat could be required upon the occurrence of a credit event relating to particular reference entities (actual net funds transfers are dependent on the recovery rate for the underlying bonds or other debt instruments).


名目本金 Notional Amount - 2011/12/31

Gross Notional Amount: $25.9 trillion

Net Notional Amount: $2.7 trillionEvery Reference Entity has a Credit EventRecovery Rate = 0


案例 Top 10 CDS Positions – Gross Notional – 2012/11/10

Source: DTCC, ISDA


案例 Top 10 CDS Positions – Net Notional – 2012/11/10

Source: DTCC, ISDA


中央清算 Central Clearing

Central Counterparty clearing facilities (CCPs)ICE Trust and ICE Clear Europe, both operated by the IntercontinentalExchangeCME Clearing, owned by CME GroupEurex Credit Clear, operated by EurexFrankfurt AGLCH.Clearnet

85 percent of CDS trading90 percent of IRS trading

Source: DTCC, ISDA


中央清算 Central Clearing


个别公司信用违约交换 Single Name CDS – 2012/10/24

Source: DTCC, ISDA


个别公司信用违约交换报价Last Quote for the most Liquid Credit Default Swaps

http://www.markit.com/cds/most_liquid/markit_liquid.shtml 1000 CDS and several Markit CDS Indices


Markit CDX indices

Markit CDX North American Investment Grade (125 names)

Markit CDX North American Investment Grade High Volatility (30 names from CDX NA IG)

Markit CDX North American High Yield (100 names)

Markit CDX North American High Yield High Beta (30 names)

Markit CDX Emerging Markets (15 names)

Markit CDX Emerging Markets Diversified (40 names).


Markit CDX indices信用违约交换指数

Source: DTCC, ISDA


Markit CDX Fixed Coupon Rates 信用违约交换票面利率指数


Markit iTraxx Europe indices 信用违约交换欧洲指数

Markit iTraxx Europe index (125 equally-weighted European names)

Markit iTraxx Europe HiVol index (30 widest spread non-financial names)

Markit iTraxx Europe Crossover index (40 most liquid sub-investment grade entities)

Markit iTraxx Europe Non-Financial index Markit iTraxx Europe Senior Financials index Markit iTraxx Europe Sub Financials index


Markit iTraxx CEEMEA index 信用违约交换指数

Markit iTraxx CEEMEA index (25 corporate and quasi-sovereign entities from Central & Eastern European, Middle Eastern and African countries)


Markit iTraxx Asia Pacific indices 信用违约交换亚太指数

Markit iTraxx Asian ex-Japan IG index (50 equally-weighted investment grade Asian entities)

Markit iTraxx Australia index (25 equally-weighted Australian entities)

Markit iTraxx Japan index (50 equally-weighted CDS of Japanese entities).


案例 Markit CDX and iTraxx Indices – 2012/11/19

Source: DTCC, ISDA


信用违约交换风险 CDS Risks

Counterparty riskfrom Lehman Brothers

Liquidity risk

Jump-to-default risk


美国政府接管二房

案例 Lehman Brothers 1Y CDS


美国政府接管二房

案例 Lehman Brothers 5Y CDS


信用违约交换用法 CDS Uses

SpeculationBuy Low; Sell HighSell High; Buy Low

Hedging

ArbitrageStock ↑ CDS Spread ↓Stock ↓ CDS Spread ↑Exception: Leveraged Buyout (LBO)

Stock ↑ & CDS Spread ↑


Negative Basis Trades

CDS Spread < Bond SpreadBuy Bond & Buy CDS

Good, ButCounterparty Credit RiskUnwinding Risk


Negative basis Trades – 2009/10


案例 JP Morgan Chase - London Whale

Bruno Iksil, a Soviet-born trader bullish on credit markets and sold Markit CDX North America Investment Grade Series 9 10-Year Index, CDX IG 9

2 Billion Loss reported in May 20125.8 Billion Loss updated on July 13, 2012


一篮子信用违约交换 Basket Credit Default Swap

A credit derivative contract that provides a payoff when any of the multiple reference entities default. The contract specifies the number of defaults after which the payoff is generated.First-to-default (FTD) CDSSecond-to-default (STD) CDSNth-to-default CDS.


信用违约交换组合 Portfolio Credit Default Swap

Portfolio CDS covers a prespecified amountrather than a prespecified sequential default number (first-to-default, second-to-default, and so on).$10 million CDS


信用违约交换 Digital Credit Default Swap

Fixed-recovery CDSRecovery rate is fixed beforehand

Binary CDS


信用违约交换指数利差交易策略 CDS Index Spread Trading

iTraxx Europe – CDX NA IG

If European sovereign-debt crisis is getting worseBuy iTraxx Europe; Sell CDX NA IG


信用违约交换个别公司利差交易策略Single Name CDS Long-Short Trading

Tokyo Electric Power

Kansai Electric Power

Buy Tokyo ; Sell Kansai Electric Power Sell Tokyo ; Buy Kansai Electric Power


信用违约交换个别公司利差曲线交易策略Single Name CDS Curve Trading

Keep Notional equal, no Default risk, but MTM risk1M 5Y CDS Spread01 ¥449, 1Y CDS ¥111

1Y: 650bp

5Y:417bp

If betting CDS Curve is flattening,

then Sell 1Y CDS, Buy 5Y CDS



Keep spread01 equal, no MTM risk, but Default risk 1M 5Y CDS Spread01 ¥449, 1Y ¥111 (5Y:1Y= 1M:4.05M); net of 3.05M credit exposure

1Y: 650bp

5Y:417bp

If betting CDS Curve is flattening,

then Sell 1Y CDS, Buy 5Y CDS


信用违约交换个别公司利差曲线交易策略Single Name CDS Curve Trading


Total Return SwapTRS

总收益互换


总收益互换 Total Return Swap (TRS)

Total return swap, or TRS Total rate of return swap, or TRORS

one party makes payments based on a set rate, either fixed or variable the other party makes payments based on the return of an underlying asset, reference assetincome capital gain



A TRS is made up of two legsthe Return Leg (or Total Return Leg)the Funding Leg.

The Return Leg is generally made up of two components: cash flows and capital appreciation of the reference asset(s).

The Funding Leg also has two components: floating coupons based on LIBOR +/- a spread and payments to offset any capital depreciation of the reference asset(s).




总收益互换 (付方) Total Return Payer (TRP)

The Return Leg counterparty is called the Total Return Payer, Swap Seller, Buyer of protection, or Beneficiary.

Owns reference asset(s) Has lower cost financing Pays total return of asset(s) Receives LIBOR +/- spread Receives payments to offset any capital losses Takes on interest rate risk Transfers away asset return risk


总收益互换 (收方) Total Return Receiver (TRR)

The Funding Leg counterparty is called the Total Return Receiver, Swap Buyer, Seller of protection, or Guarantor.

Does not own reference asset(s) - has a weaker balance sheet or uses balance sheet leverage Has higher cost financing Receives total return of asset(s) Pays LIBOR +/- spread Pays for any capital losses Takes on asset return risk Takes on interest rate risk


总收益互换 Total Return Swap Example

In a Bank Loan TRS, a large bank such as Citigroup (the Total Return Payer) owns a loan(s). It then enters into a TRS with an investor (the Total Return Receiver). The bank pays all the interest and realized capital gains to

the Seller, minus a "funding charge" (akin to an access fee to the bank's balance sheet). The investor pays LIBOR plus a spread, plus any realized

capital losses to the bank.

Initial collateral (the "haircut" or "Independent Amount" in swap language) of between 15% and 80% is paid to the bank by the investor at the inception of the TRS. The bank holds this collateral in a separate account and pays the investor periodic interest at the Fed Funds Effective Rate.


总收益互换 (收方)Payments Received by Total Return Receiver

If reference asset is a bond, the bond coupon

The price appreciation, if any, of the reference asset since the last fixing date

If the reference asset is a bond that defaulted since the last fixing date, the recovery value of the bond

Interest on any collateral / haircut being held by the Total Return Payer


总收益互换 (付方)Payments Received by the Total Return Payer

The periodic floating payment (usually LIBOR +/- a spread)

The price depreciation, if any, of the reference asset since the last fixing date

If the reference asset is a bond that defaulted since the last fixing date, the par value of the bond


总收益互换 (收益) Total Return Swap Benefits

Leverage – Initial Collateral

A synthetic funding instrument - improved financing costs

Operational efficiency – TRS Payer

Flexibility

Access to otherwise inaccessible asset classesLoans


总收益互换 (风险) Total Return Swap Risks

Investment Return Risk

Interest Rate Risk - LIBOR

Liquidity Risk

Counterparty Risk

Bankruptcy Risk – Reference Asset(s)


总收益互换 (合约文件) Total Return Swap Documentation

International Swaps and Derivatives Association (ISDA www.isda.org) Master Agreement and Schedule, which governs swaps between two parties.

Credit Support Annex (CSA), where the parties set forth the agreed collateral and credit terms.

The Swap Confirmation ("Confirm") is usually a customized document. The Confirm sets the actual trade terms of the TRS, which may vary widely depending on the reference asset(s) and parties.


Credit Linked NoteCLN

信用联结票据


信用联结票据 Credit Linked Note (CLN)

Credit Linked Note Buy a Bond from a Investment BankSell CDS on another Reference Entity


信用联结票据 Credit Linked Note (CLN)


信用联结票据 Credit Linked Note Examples


信用联结票据 Credit Linked Note Credit Risks

Counterparty Risk

Reference Entity Risk


USA Real Estate Bubble美国房市泡沫


2002

2012

美国房市泡沫 USA Real Estate Bubble Peaked in 2006


忍者贷款 Ninja Loans

No Income, No Job, and no Assets. NINJA loans are often defaulted on, with the borrower disappearing like a ninja.



One Bed Room Apartment in New York City

Rent$3000

Buymonthly mortgage, maintenance and taxes > $6000

Why Buy, not Rent?


Everybody thinks the prices are High

Most people think the prices will stay high



Collateralized Debt ObligationCDO

抵押债务债券担保债务凭证


抵押债务债券担保债务凭证Collateralized debt obligation (CDO)

Collateralized debt obligations (CDOs) are a type of structured asset-backed security (ABS) with multiple "tranches" that are issued by special purpose entities (SPV) and collateralized by debt obligations including bonds and loans. Each tranche offers a varying degree of risk and return so

as to meet investor demand. CDOs' value and payments are derived from a portfolio of

fixed-income underlying assets. CDO securities are split into different risk classes, or

tranches, whereby senior tranches are considered the safest securities. Interest and principal payments are made in order of seniority, so that junior tranches offer higher coupon payments (and interest rates) or lower prices to compensate for additional default risk.


抵押债务债券担保债务凭证 – 金流CDO Cash Flow Diagram - Simplied


不动产抵押债券Residential Mortgage Backed Security (RMBS)


Residential Mortgage Backed Security (RMBS)Subprime mortgage crisis: 2007/7 -


CDO – IMF Diagram

Source: DTCC, ISDA


CDO ^ 2



抵押债务债券担保债务凭证- 不同抵押品Types of CDOs – Different Collaterals

Collateralized loan obligations (CLOs) —leveraged bank loans.

Collateralized synthetic obligations (CSOs) —credit derivatives.

Structured finance CDOs (SFCDOs) — structured products (such as asset-backed securities and mortgage-backed securities)

Commercial Real Estate CDOs (CRE CDOs) —commercial real estate assets


Collateralized bond obligations (CBOs) —corporate bonds

Collateralized Insurance Obligations (CIOs) —insurance or, more usually, reinsurance contracts

CDO-Squared — tranches issued by other CDOs.

CDO^n, Generic term for CDO^3 (CDO cubed) and higher — CDOs/CDO^2/CDO^3.

抵押债务债券担保债务凭证- 不同抵押品Types of CDOs – Different Collaterals


抵押债务债券担保债务凭证- 生命周期CDO Life Cycle

1.Ramp-up phase, when the manager uses the proceeds from issuing the CDO to purchase the initial portfolio. The CDO's governing documents generally specify parameters for the initial portfolio but not the exact composition.

2.Reinvestment phase, during which the manager actively manages the portfolio and reinvests cash flow from the portfolio.

3.Amortization phase, during which the manager must apply the cash flow toward repaying the CDO's debt securities.


抵押债务债券担保债务凭证- 检测CDO Performance Tests

Asset Quality Testsminimum weighted average rating (WAR) testIndustry and obligor limitsminimum weighted average coupon (WAC) testcumulative maturity distribution test

Cash Flow Coverage TestsOvercollateralization, OC, test, the ratio of the portfolio balance to the balance of the CDO's debt securitiesInterest coverage, IC, test, the ratio of interest cash flow on the portfolio to the interest that the CDO must pay on its own securities.


抵押债务债券担保债务凭证- 结构CDO Building Blocks


抵押品经理人 Collateral Manager

Portfolio or Asset manager

Collateral manager’s primary functions Sell investments in the collateral pool that may lose value, default or become impairedBuy investments with attractive yields and a favorable investment outlook.


抵押品管理 Managed CDO - Example

投资组合之交易更换原则 Limit

同一公司持有上限 (BBB- 以上) [2.0]%

同一公司持有上限(BB+ 以下) [1.0]%

同一产业持有上限(非银行或金融业) [20.0]%

同一国家持有上限(非欧美国家) [20.0]%

替换 (每年) [不限]

其他原则 Limit

Fitch Dynamic Portfolio Guidelines 适用


投行的3个角色Investment Bank (Arranger, Underwriter and Placement Agent)

the Arranger will organize meetings between investors and a collateral manager in order to discuss a potential transaction

the investment bank may advise the collateral manager concerning rating agency requirements or apprise them of the specific nuances of certain investors.

As Underwriter and Placement agent, the investment bank is responsible for the orderly execution and delivery of the promised bonds.


信托公司的3个角色Trustee (Trustee, Custodian, Paying Agent)

the Trustee for a CDO transaction is custodian of the collateral and protects investors’ security interests by ensuring that transaction covenants are honored. Evaluation of the trade recommendations of the collateral manager in order to ensure compliance with deal covenantsRelease or receipt of cash or securities (from trading activities, for example), Distribution of cash to investorsCreation and distribution of deal surveillance reports.


信用评等公司 Rating Agencies

Assign credit ratings to different parts of the CDO capital structure based on their perceived levels of risk. Moody’s Investors ServiceStandard & Poor’sFitch Ratings Ltd


投资者 Investors

CDO investors are typically sophisticated institutional investorsInsurance companiesMoney managersBanksPension fundsHedge fundsAsset-backed commercial paper conduits.


避险对手方 Hedge Counterparty

The hedge counterparty is generally a highly rated investment or commercial bank that enters into an interest rate swap, currency swap, liquidity swap or another type of basis swap for the purpose of removing non-credit-related risk from the CDO transaction.


信用保证人 Credit Enhancer

The credit enhancer is generally a monoline bond insurer that is paid an upfront and/or ongoing fee to insure a class of CDO securities against losses.

American International Group, AIG


美国政府为什么救AIG


特别目的公司 Special Purpose Vehicle (Issuer)

The issuer of CDO transactions is a bankruptcy-remote special-purpose vehicle (SPV) located in a tax-friendly jurisdiction.

The SPV purchases securities which will comprise the collateral poolissues CDO securities.

Because the operation of the SPV is precisely defined in the indenture, there is no need for employees and therefore it has none.


CDO Types抵押债务债券担保债务凭证品种


固定vs.浮动Static vs. Managed CDOs

Static CDO: Collaterals stay the same

Managed CDO: Collaterals change


金流 vs. 市值Cash Flow vs. Market Value CDOs

Cash Flow CDO use cash flow from the collateral to pay the CDO investors

Market Value CDO can sell collateral to pay the CDO investors


资产负债表vs.套利Balance Sheet vs. Arbitrage CDOs

Balance Sheet CDO takes collateral off a bank’s balance sheet

Arbitrage CDO creates higher rating tranches out of lower rating collateral


CDO – IMF Diagram

Source: DTCC, ISDA

Arbitrage CDO

Balance Sheet CDO


Cash vs. Synthetic CDOs 合成式抵押债务债券担保债务凭证

Cash CDO uses bonds or loans as collateral

Synthetic CDO uses CDS as collateral


合成式抵押债务债券担保债务凭证 Synthetic CDO

A synthetic CDO is a portfolio of credit default swaps (CDS).

The CDS seller provides protection (insurance) in the event of a default or specified "credit event" related to the reference security.

The CDS buyer pays a premium in exchange for this protection.


合成式抵押债务债券担保债务凭证 Synthetic CDO

Source: FCIC


单一管道式抵押债务债券担保债务凭证Single-tranche CDO (STCDO)

A single-tranche CDO is a contract between protection buyer and protection seller.

A single tranche is commonly referred to as an ―x excess y‖ tranchex is the tranche sizey the subordination level (attachment point)


单一管道式抵押债务债券担保债务凭证Single-tranche CDO - Decision Steps

1.Select a portfolio of credits to that they want exposure to.

2.Choose a subordination level (attachment point)and a tranche size corresponding to their risk/return preference or yield target.

3.Dynamically manage their position and substitute credits in the collateral portfolio throughout the life of a single-tranche CDO.


单一管道式抵押债务债券担保债务凭证Single-Tranche CDO


单一管道式抵押债务债券担保债务凭证 (无本金)Single-Tranche CDO — Unfunded Form

The investor receives a periodic premium usually expressed as a fixed percentage in basis points of the outstanding notional amount of the tranche. The investor provides protection for any loss more than

subordination level, but the loss payment made by investors is capped by the tranche size, i.e., the maximum loss for an investor is the tranche size.

The cash flow exchanged between the two counterparties default swap premium from protection buyer to the

protection sellerloss payment, if any, from the protection seller to the

protection buyer.


单一管道式抵押债务债券担保债务凭证 (有本金)Single-Tranche CDO — Funded Form

The notional amount the investor pays on closing is usually invested in high-quality, liquid assets such triple-A rated asset-backed securities. The STCDO note pays fixed rate or LIBOR plus a premium on the outstanding notional.

At maturity, the investor is paid back the notional, unless the losses exceed the subordination level. If that occurs, the notional is reduced, and a portion of the collateral is liquidated and paid to the protection buyer.


单一管道式抵押债务债券担保债务凭证Single-Tranche CDO — Example

Issuer CDO Company Cayman Islands Ltd. Nominal $30,000,000 Maturity 5 years Rating A+/A1 Collateral 5yr MTN issued by the International Bank for Reconstruction and Development (World Bank) rated AAA/AaaCoupon 6m Libor + 1.00% Reference Portfolio $1,000,000,000 portfolio of 100 investment grade entities based in USA and Canada Attachment Point 3% Detachment Point 6%


the tranche has 3% subordination, the reference portfolio has 100 names with $10 million size each, and the recovery rate is 40% for each credit.

5 defaults can happen without affecting the tranche on the portfolio5 * $10 million * (100% – 40%) = $30 million loss on the portfolio

The losses associated with the 6th default will be covered by the protection seller.

单一管道式抵押债务债券担保债务凭证Single-Tranche CDO — Example


STCDO vs. Corporate Bonds

Spread pick-up with higher yields than a similarly –rated corporate investmentDiversified, agency-rated credit exposureCustomizable to achieve balance between risk tolerance and pricing goals:Portfolio selectionAmount of Loss ThresholdExposure size

Simple transaction economics (unlike complicated payment waterfalls with cash CDO notes)Easy execution and instant rampupSubstitution rights available (subject to agreed –upon criteria)


抵押债务债券担保债务凭证风险CDO Risks

Systemic or Modeling Risk

Collateral Credit Risk

Structural Risk

Servicer / Manager Risk

Call Risk


Correlation相关


Correlation 相关

Increased correlation increases the probability of extreme events.good extremes (i.e. no

defaults)bad extremes (i.e. many

defaults).


亏损分配与相关Portfolio Loss Distribution vs. Correlation

Higher correlation produces ―fat tails‖ –Increasing the likelihood of extreme outcomes (both no default, and high default scenarios)


相关与抵押债务债券担保债务凭证 Correlation and CDO

Default correlation INCREASESprices on Senior Tranches DECREASESprice on Equity Tranche INCREASES

Default correlation DECREASESprices on Senior Tranches INCREASESprice on Equity Tranche DECREASES


相关与一篮子信用违约交换 Correlation and Basket CDS

Default correlations INCREASESspread on 1st-to-default CDS DECREASESspread on Nth-to-default CDS INCREASES

Default correlations DECREASES spread on 1st-to-default CDS INCREASESspread on Nth-to-default CDS DECREASES


相关与抵押债务债券担保债务凭证/一篮子信用违约交换Correlation and CDO (Basket CDS)

Higher

SpreadDefault more

likely

Complex(

Varies)

Lower

Spread

Lower

SpreadDefault less

likely

Complex(

Varies)

Higher

Spread

Senior

Tranches

Mezzanine

Equity

Low CorrelationHigh Correlation

CDO

(Basket CDS)


Constant Proportion Debt Obligation CPDO

固定比例债务债券


固定比例债务债券First CPDO, SURF 100, 2006/8

142


固定比例债务债券 CPDO Structure

143


固定比例债务债券 CPDO

144

A dynamically leveraged credit trading strategy which aims at generating high coupon payments ( typically 100-200bp above LIBOR rate ) Selling default protection on a portfolio of

investment-grade obligors with low default probabilities.

An investor in a CPDO provides initial capital and receives periodic coupon payments of a contractual spread above the LIBOR rate until expiry of the deal.



145

Short term Investment, like a money market account

Leveraged position in a CDS index (typically the 5-year CDS index iTraxx or CDX)





Cash in When the portfolio value reaches a value sufficient to meet future liabilities, then the CPDO manager can meet her obligations by simply investing (part of ) the fund in the money market. In this event all swap contracts are liquidated and the CPDO portfolio consists only of the money market account.

Cash outWhen the value falls below a threshold. In this case the CPDO unwinds all its risky exposures, ends coupon payments and returns the remaining funds to the investor.


固定比例债务债券交易策略 CPDO strategy

LeverageWhen NAV increases, the leverage decreasesSell High

When NAV decreases, the leverage increasesBuy Low


固定比例债务债券 CPDO Risks

149

Spread riskThe main determinate of the CPDO cash flow is the index

defaults swap spread. The index roll will typically result in a downward jump in the spread since the downgraded names that are removed contribute with higher spreads than the investment grade names that are replaced by. On average this negative jump implies a market-to-market loss on roll dates.

Default riskThe default rate in the underlying portfolio determines the

average number of defaults during the lifetime of the CPDO. A higher default rate is negative for the CPDO performance

due to higher expected credit losses.


Interest rate riskHigher LIBOR rates imply higher coupon payments to

the investor but this effects will more or less be offset by the higher interest accruing to the money market account.

Present value

Liquidity risk The liquidity of the index. Most CPDOs reference the most

liquid indices, iTraxx and CDX.

150

固定比例债务债券 CPDO Risks - Continued


CPDOs are path-dependent spread derivatives. The main risk of a CPDO is not default risk but spread and

interest rate risks. The worst case scenario for the CPDO investor is observed to be a spread-widening scenario, even in absence of defaults.

151

固定比例债务债券 CPDO Risks - Continued


Constant Proportion Portfolio Insurance CPPI

固定比例投资组合保险债券


固定比例投资组合保险债券Constant Proportion Portfolio Insurance (CPPI)

A trading strategy which allows an investor to maintain an exposure to the upside potential of a risky asset while provide a capital guarantee against downside risk.


固定比例投资组合保险债券 CPPI

guarantee the capital investeda position in a Treasury bonds or liquid monetary instrumentsa leveraged position in a "risky asset", usually a market index



Et = M x ( At- Ft) At = Dt + Et

A (asset) ,

D (Deposit) = reserve assetE (Exposure) = active asset M (Multiplier) F (Bond floor) = minimum guarantee (A - F) = cushion

Bond floorThe bond floor is the value below which the value of the CPPI portfolio should never fall in order to be able to ensure the payment of all future due cash flows (including notional guarantee at maturity).

MultiplierUnlike a regular bond + call strategy which only allocates the remaining dollar amount on top of the bond value

(say the bond to pay 100 is worth 80, the remaining cash value is 20), the CPPI leverages the cash amount. The multiplier is usually 4 or 5, meaning you do not invest 80 in the bond and 20 in the equity, rather m*(100-bond) in the equity and the remainder in the zero coupon bond,.

GapA measure of the proportion of the equity part compared to the cushion : (CPPI-bond floor)/equity. Theoretically, this should equal 1/multiplier and the investor uses periodic rebalancing of the portfolio to attempt to maintain this.


固定比例投资组合保险债券 CPPI vs. Bond + Call

Bond + Call client would only get the remaining proceeds (or initial cushion) invested in an option, bought once and for all

CPPI provides leverage through a multiplier.


固定比例投资组合保险债券 CPPI Example

Money invested = $100Bond Floor = $80Risky Asset ↓ 50%Let X = Risky position

X * 50% + (100 – X) = 80100 – 80 = -0.5X + X20 = 0.5XX = 40

Multiplier = 40 / (100 – 80)= 2


乘数与亏损 Multiplier and Loss

Loss: maximum percentage loss of risky asset before rebalance

Multiplier * (100 – Floor) * (1 – Loss) +

100 – Multiplier * (100 – Floor) = Floor

Multiplier * (100 – Floor) – Multiplier * Loss * (100 – Floor) + 100 – Multiplier * (100 – Floor) = Floor

-Multiplier * Loss * (100 – Floor) + 100 = Floor-Multiplier * Loss * (100 – Floor) = -(100 – Floor)Multiplier * Loss = 1

Multiplier = 1 / Loss



Leverage When Volatility increases, Leverage (multiplier)

decreases When Volatility decreases, Leverage (multiplier)

increases

Rebalance When NAV increases, cushion increases Buy (due to multiplier) High

When NAV decreases, cushion decreases Sell (due to multiplier) Low


固定比例投资组合保险债券部位调整 CPPI Rebalance

Time Discipline

Market Move Discipline

Multiplier Dicipline

160


固定比例投资组合保险债券用户 Usage of CPPI

Closed-end fundOpen-end fundActively managed fundsPassive fundsHedge fundsEthical fundsWith-profit fundPension funds

161


固定比例投资组合保险债券与抵押债务债券担保债务凭证CPPI vs. CPDO

Upside PotentialCPPI lets the profit runCPDO limits the profit when Cash In

Downside ProtectionCPPI guarantees return of capital investedCPDO stops loss when Cash Out


固定比例投资组合保险债券跳空风险CPPI Gap Risk

As dynamic trading strategies assume that capital markets trade in a continuous fashion, gap risk is the main concern of CPPI writer, since a sudden drop in the risky underlying trading instrument(s) could reduce the overall CPPI net asset value below the value of the bond floor needed to guarantee the capital at maturity. Such sudden price moves may make it impossible to shift the position from the risky assets to the bond, leading the structure to a state where it is impossible to guarantee principal at maturity. With this feature being ensured by contract with the buyer, the writer has to put up money of his own to cover for the difference (the issuer has effectively written a put option on the structure NAV). Banks generally charge a small 'protection' or 'gap' fee to cover this risk, usually as a function of the notional leveraged exposure.


Quanto双币别衍生品


双币别衍生品 Quanto

Quantity adjusting Option


双币别衍生品 Quanto

A cash-settled, cross-currency derivative in which the underlying asset is denominated in a currency other than the currency in which the quanto is settled.

Quantos are settled at a fixed rate of exchange, providing investors with shelter from exchange-rate risk.

At the time of expiration, the option's value is calculated in the amount of foreign currency and then converted at a fixed rate into the domestic currency.

A quanto has an embedded currency forward with a variable notional amount.


双币别衍生品 Quanto Example 1

BSE SENSEX (Bombay Stock Exchange Sensitive Index)a free-float market capitalization-weighted stock market

index of 30 well-established and financially sound companies listed on Bombay Stock Exchange (BSE).

Eurex SENSEX Futures (FSEN)USD $1 x SENSEXSettled in US Dollar, Not Indian Rupee


双币别衍生品 Quanto Example 2

Nikkei 225a stock market index for the Tokyo Stock Exchange

(TSE)It has been calculated daily by the Nihon Keizai Shimbun

(Nikkei) newspaper since 1950.a price-weighted index (the unit is yen), and the

components are reviewed once a year

CME Nikkei 225 Dollar FuturesUSD $5 x Nikkei Stock Average Settled in US Dollar, Not Japanese Yen


双币别衍生品 Quanto Option

A quanto option is an option on some underlying in one currency but paid in another currency.


双币别衍生品 Quanto Option Example

A quanto IBM stock option ￡MAX(S-K,0)S is the IBM stock price at maturityK is the strike.


Quanto Swap双币别衍生品交换


双币别衍生品交换 Quanto Swap

Differential swap“diff” swap



Like Interest Rate Swap

Invest / Speculate in foreign interest rate without currency risk

Only interest payments are exchanged, not principal

Interest payments are based on two reference rates in different currencies


双币别衍生品交换 Quanto Swap - fixed to floating

One party pays a fixed rate and one pays a floating rate. The fixed and floating rates are in different currencies. Both the fixed and floating rates are paid in the same currency.

Exampleyou are paying a fixed rate on a $1 million liability. You enter into a quanto swap, whereby you receive a

fixed rate from the other party, and pay the other party the 6m EURIBOR floating rate on the USD notional in USD.


双币别衍生品交换Quanto Swap - floating to floating

Floating to floatingBoth parties pay a floating rate, each taken from a

reference rate based on a different currency, such as LIBOR and EURIBOR. Both floating rates are payable in the same currency.

ExampleYou are paying a 6m USD LIBOR on a $1 million liability. You enter into a differential swap, whereby you receive

the 6m USD LIBOR floating rate from the other party, and you pay the other party the 3m EURIBOR floating rate on the USD notional in USD.



Quanto Swap ContractReference rates(+ Spread)NotionalDate the contract begins. Duration of the contract. The frequency of the payment periods for the interest rate

payments.


双币别衍生品交换 Quanto Swap Advantages

It lets you take a view on a foreign reference rate, without exposing yourself to any foreign exchange rate risk.

It lets you transfer liquidity in one currency into another currency.For example, from 6m USD LIBOR to 3m EURIBOR


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信用衍生性商品 Credit Derivatives - dwfutures.com

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