FRM 4. Credit Risk Transfer Mechanisms

Learning Objectives

1) Compare different types of credit derivatives, explain their applications, and describe their advantages.

2) Explain different traditional approaches or mechanisms that firms can use to help mitigate credit risk.

3) Evaluate the role of credit derivatives in the 2007-2009 financial crisis and explain changes in the credit derivative market that occurred as a result of the crisis.

4) Explain the process of securitization, describe a special purpose vehicle (SPV), and assess the risk of different business models that banks can use for securitized products.