Credit Derivatives

Design, price, and analyze credit derivative instruments

A credit derivative is a financial derivative instrument whose value depends upon the credit risk of an underlying reference entity such as a loan or a bond. Credit derivatives such as credit default swaps (CDSs), credit default swaptions, credit linked notes (CLNs), credit spread options (CSOs) and collateralized debt obligations (CDOs) provide risk management and investment opportunities for financial market participants.

Leading institutions in the financial services industry use MATLAB to price and analyze credit derivatives. MATLAB toolboxes, such as those for financial instruments, statistics, finance, and econometrics, support derivative modeling tasks, enabling you to:

• Create models to analyze credit events that affect derivative pricing
• Design and price structured credit instruments
• Build credit index pricing solutions
• Analyze the credit derivatives market to identify relative mispricing and trading opportunities
• Manage sovereign and corporate default risk exposure

Examples and How To

• Basel II Credit Risk Modeling in MATLAB 28:33 (Dexia Video)
• Structured Product Pricing (Basket Index) Using MATLAB (Webinar)
• Pricing and Valuation of Credit Default Swaps 4:21 (Video)
• SinoPac Securities Builds Structured Products Using MATLAB (User Story)
• Banche Popolari Unite Analyzes Credit Risk Using MATLAB (User Story)
• Bootstrapping a Default Probability Curve (Example)
• Forecasting Corporate Default Rates (Example)
• Valuing an Existing CDS Contract (Example)

Software Reference

• Credit Default Swap (Documentation)
• Credit Default Swaption (Documentation)
• Bootstrap Default Probability Curve from CDS Market Quotes (Function Reference)
• Determine the Price for a Credit Default Swap (Function Reference)
• Price Payer and Receiver Credit Default Swaptions (Function Reference)

See also: MATLAB in production, financial engineering, market risk, Financial Toolbox, fixed income, financial services