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AIMs: Define and describe how default sensitivities for tranches are measured. Summarize some of the different types of risks that play a role in structured products. Identify the motivations for using structured credit products. Questions: 315.1. According to Malz, "The default01 measures the...

AIM: Describe the key properties of ... the Poisson distribution, normal distribution ... and identify common occurrences of each distribution. Questions: 310.1. A large bond portfolio contains 100 obligors. The average default rate is 4.0%. Analyst Joe assumes defaults follow a Poisson...

AIMs: Describe a simulation approach to calculating credit losses for different tranches in a securitization of a portfolio of loans. Explain how the probability of default and default correlation among the underlying assets of a securitization affects the value, losses and Credit VaR of equity...

AIMs: Describe the key properties of the uniform distribution, Bernoulli distribution, Binomial distribution ... Questions: 309.1. Next month, the short interest rate will be either 200 basis points with probability of 28.0%, or 300 basis points, as a Bernoulli. What is nearest to the...

AIMs: Evaluate one or two iterations of interim cashflows in a three-tiered securitization structure including the final cashflows to each tranche holder. Questions: 313.1. Let's assume the same three-tier securitization structure illustrated by Malz section 9.2 with identical assumptions, for...

AIMs: Calculate the face value of multiple offsetting swap positions needed to carry out a two-variable regression hedge. Compare and contrast between level and change regressions. Describe principal component analysis and explain how it is applied in constructing a hedging portfolio...

AIMs: Identify common types of structured products and the various dimensions that are important to their value and structure. Describe the role of capital structure and credit losses in a securitization. Evaluate a waterfall example in a securitization with multiple tranches. Identify the key...

AIMs: Explain the drawbacks to using a DV01-neutral hedge for a bond position. Describe a regression hedge and explain how it improves on a standard DV01-neutral hedge. Calculate the regression hedge adjustment factor, beta. Calculate the face value of an offsetting position needed to carry out...

AIMs: Explain how Credit VaR of a portfolio is calculated using the single-factor model, and how correlation affects the distribution of loss severity for intermediate values between 0 and 1. Describe how Credit VaR can be calculated using a simulation of joint defaults with a copula...

AIMs: Define key rate exposures and know the characteristics of key rate exposure factors including partial ‘01s and forward-bucket ‘01s. Describe the relationship between key rates, partial '01s and forward-bucket ‘01s, and calculate the forward bucket ‘01 for a shift in rates in one or more...

AIMs: Describe how a single-factor model can be used to measure conditional default probabilities given economic health. Compute the variance of the conditional default distribution and the conditional probability of default using a single-factor model. Explain the relationship between the...

AIMs: Describe the key rate exposure technique in multi-factor hedging applications and summarize its advantages and disadvantages. Calculate the key rate exposures for a given security, and compute the appropriate hedging positions given a specific key rate exposure profile. Questions: 319.1...