FIN9874, Credit Markets, Production plan

Professor: Liuren Wu

List of planned video recordings:

• Introduction (slides)

  1. Introduction (video): Introduce the professors, the syllabus, and the teaching philosophy.

• Credit markets and instruments (slides): An introduction of the credit markets and instruments

  1. The landscape of credit markets and instruments (video): a general discussion on different instruments with tradeoff between risk and income

  2. Cash instruments (video): an overview of cash instruments such as bonds, loans, and private credit

  3. Synthetic instruments (video): an overview of synthetic instruments such as CDS, index CDS, credit ETFs, and total return swaps

  4. Structured products (video): an overview of structured products such as ABS, MBS, and CLO, CDO, CMO tranches

  5. Market structure (video): a short discussion on the market structure and the business model for being a successful dealer in the secondary market

• The capital structure (slides): Introduce a valuation framework on the capital structure to predict credit risk and generate relative value opportunities.

  2. 1. Identify investment opportunities along the capital structure (video) : a general discussion how one identifies investment opportunites along the captial structure

     2. The Merton structural model (video): We introduce the classic structural model by Merton, which treats equity as a call option on the firm value.

     3. Forecast default probabilities (video) : We explore the application of the structural model in forecasting default probabilities and generating credit ratings

     4. Forecast default probabilities: Some technical details (video) : We go over some technical details in converting default events to default probability estimates, and converting distance to default estimates to default probability prediction over any horizons.

     5. Predict credit spreads (video): We explore the application of the structural model in generating fair valuation on credit spreads (on bonds or CDS). We also illustrate how to trade on the mispricing from the valuation.

     6. Statistical arbitrage on relative valuation (video): We explore different types of statistical arbitrage trading based on the model valuation.

     7. Disentangle risk exposures (video): We discuss yet another application of the structural model in disentangling risk exposures in stocks and bonds.

     8. Disentangle risk exposures: Applications (video): We use the structural risk decomposition to shed light on some observed market behaviors.

     9. Beyond Merton (video): A general discussion on the role of a model and future directions for model development.

• The risk structure (slides): Explain the motivation of forming long-short portfolios to cancel out systematic risk exposures and discuss the construction of robust risk structures

  2. 1. The investment decision (video): A general discussion of the investment decision and how appropriate long-short portfolio construction can dramatically increase the benefit of diversification

     2. The risk factor structure (video): We discuss different approaches in constructing risk factor structures for the purpose of constructing robust long-short portfolios

     3. Features as loadings in the bond market (video): We use the US corporate bond market as an example and illustrate how to construct a robust risk factor structure