Basics of Credit Derivatives

Credit Derivatives- a primer
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By Vinod Kothari

1988 capital regulations

ABX.HE

Acceleration

Accreting obligations

Administration

Administrative receivership

AFS

Amortisation

Arbitrage

Arbitrage CDO

Asset swap

At-the-money

Attachment point

Auction-based valuation

Available for sale securities

BIS

Balance sheet CDO

Bank of International Settlements  (BIS)

Banking Book

Bankruptcy

Base correlation

Basel

Basis

Basis points

Basis Risk

Basis trade

Basket Default swap

Basket trades

Basle regulations

Basle –II

Beneficiary

Bespoke CDO

Bid

Binary payout structure

Bips

Bistro

Black box transaction

Bond

Bond guarantee

Bond insurance

Book value

Borrowed money

Bps

Broker

Calculation agent

Call Option

Callable credit default swap

Capital adequacy requirements

Carrying value

Cash asset(s)

Cash CDO

Cash securitisation

Cash settlement

CDO

CDO Square

CDS

CDX.NA

Chapter 11

CLNs

Close-out netting

CMBX

CMCDS

Collateral

Collateral manager

Collateral security

Collateralized bond obligation (CBO)

Collateralized debt obligation (CDO)

Collateralized Fund Obligations (CFO)

Collateralized loan obligation (CLO)

Compound correlation

Concentration risk

Conduit

Confirmation

Constant maturity CDS (CMCDS)

Constant Proportion Portfolio Insurance CDO

Convexity

Cooling off period

Copula

Correlation

Correlation skew

Correlation trade

Counterparty

Counterparty credit charge

Counterparty risk

CPDO

CPPI CDO

Credit curve

Credit default swap

Credit derivative

Credit Derivative Definitions

Credit derivative product companies

Credit event

Credit event payment

Credit linked notes (CLN)

Credit risk

Credit risk buyer

Credit risk premium

Credit risk seller

Credit spread

Credit spread options

Credit Support

Credit wrap

Curve trade

Dealer

Debenture

Default

Default event(s)

Default probability

Default risk

Default swap

Defaulted obligation

Definitions

Deliverable obligation

Delta hedging

Delta trading

Derivative

Detachment point

Digital swap

Diversity score

Due date

Duration

Dynamic portfolio swap

Economic capital

Effective Date

Embedded derivative

Equity

Equity tranche

Exchange traded derivatives

Expected losses

FAS 133

Failure to pay

Fallen angel

Financial instrument

First loss risk

First to default swap

Fixed Rate Payer

Fixed recovery default swap

Flattener trade

Floating rate payer

Fully tranched CDO

Funded derivative

Gaussian copula

Guarantor

Guarantee

Grace period

Green bottle structure

HTM asset

Hedge accounting

Hedged item

Hedging

Hedging instrument

Hold to maturity instruments

HTM

Hybrid CDO

IAS 39

Idiosyncratic risk

In-the-money

Index

Index swap

Index trade

Insurance contract

ISDA

ISDA Master Agreement

Issuer

iTraxx

LCDS

LCDX

LIBOR

LIED

Legal risk

Letter of credit

Leverage

Leveraged loan

Leveraged Super senior CDO

Liquidity risk

Listed

Loan participation

London Interbank Offered Rate (LIBOR)

Long position

Loss given default

Loss-In-Event-of- Default (LIED)

Mark-to-market (MTM)

Mark-to-model

Market maker

Market risk

Market value

Matched position

Materiality

Materiality threshold

Mean reversion

Merger without assumption

Mezzanine tranche

Modified Restructuring

Modified Modified Restructuring

Moratorium

MMR

MR

Naked

Negative basis

Negative basis trade

NIPS

Not Contingent

Notice of Intended Physical Settlement

Notional value

Noticed of Intended Settlement

OTC derivatives

Obligation

Obligation acceleration

Obligation default

Obligor

Offer

Offsetting position

On-the-run index

Operational risk

Originator

Out-of-money

Over the counter (OTC) derivatives

Par

Pari passu

Payer option

Physical settlement

Portfolio default swap

Positive basis

Present value

Protection buyer

Protection payments

Protection seller

Publicly available Information

Put option

Rated liabilities

Rating

Rating migration

Rating transition

Receiver option

Recovery rate

Recovery swap

Recovery value payout

Reference asset

Reference entity

Reference obligation

Regulatory arbitrage

Regulatory capital

Regulatory capital relief

Repackaging

Repudiation

Re-securitisation

Residual economic interest

Residual risk

Restructuring

Risk based capital standards

Risk buyer

Risk seller

Risk weight

SPE

SPV

Second-to-default swap

Securitisation

Selection criteria

Senior tranches

Senior unsecured obligations

Seniority

Settlement

Settlement risk

Short position

Single name credit default swap

Single tranche synthetic CDO

Special purpose entity

Special purpose vehicle

Specified currencies

Spread

Spread option

Steepener trade

Strike price

Structured finance CDO

Structured notes

Structured product

Structured risk transfer

Super senior swap

Survival

Survival probability

Swap calculation agent

Swaptions

Synthetic asset(s)

Synthetic CDO

Synthetic equity

Synthetic investment

Synthetic rated over-collateralization

Synthetic securities

Synthetic securitisation

TABX

Term structure of credit risk

Threshold amount

Total rate of return swap

Total return swap (TRS)

Trade date

Trading book

Trading Securities

Tranche

Tranchlets

Tranche trading

Transition matrices

TROR

Trustee

Underlying asset

Unexpected losses

Unfunded derivative

Unhedged derivative

Valuation

Value at risk (VaR)

Volatility

Withholding tax