Derivatives (FRM Part 2 – Book 2 – Credit Risk Measurement and Management – Ch 14)

Описание: Master FRM Part 2 concepts with this lecture on Credit Risk Measurement and Management, focusing on derivatives. Learn how exchange-traded and OTC derivatives work, the role of clearing mechanisms, counterparty risk, collateralization, and credit derivatives like swaps and CDS.

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After completing this reading, you should be able to:
Compare and contrast exchange-traded derivatives and over-the-counter (OTC) derivatives, and discuss the features of their markets.
Describe the process of clearing a derivative transaction.
Identify the participants and describe the use of collateralization in the derivatives market.
Define the International Swaps and Derivatives Association (ISDA) Master Agreement, the risk-mitigating features it provides, and the default events it covers.
Describe the features and use of credit derivatives and discuss potential risks they may create.
Describe central clearing of OTC derivatives and discuss the roles, mandate, advantages, and disadvantages of the central counterparty (CCP).
Explain the margin requirements for both centrally-cleared and non-centrally-cleared derivatives.
Define special purpose vehicles (SPVs), derivatives product companies (DPCs), monolines, and credit derivatives product companies (CDPCs) and describe the limitations of using them as risk mitigating methods.
Describe the approaches used and the challenges faced in modeling derivatives risk.

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