Blog
CAS Exam 9 Study Notes: Credit Risk and Credit Derivatives
2019-04-09
My notes on credit risk and credit derivatives are now available. These notes are based chapters 14 and 16 of the textbook Investments by Bodie, Kane, and Marcus, and the paper The Economics of Structured Finance by Joshua Coval, Jakub Jurek, and Erik Stafford. The notes describe the basic ideas of the bond rating system and methods of securitizing debt, with most of the attention given to Collateralized Debt Obligations. Methods for determining the default probability and expected loss of a CDO are described, and the sensitivity of these methods to the assumptions about the default probability and correlation of the underlying debts is assessed through simulations. The numerous problems associated with CDOs are discussed, and their role in the 2008 financial crisis is explained.
Keywords: Actuarial Science, Study Note, Exam 9