Credit Risk Transfer Mechanisms
Free GARP FRM Part I lesson in Foundations of Risk Management. 18 min read, ~2,701 words.
Traditional credit-risk mitigation: netting, collateral, third-party guarantees, credit insurance. Reduces exposure but doesn't transfer the risk to capital markets. Credit derivatives: CDS (single-name + index), total return swaps, CLNs. Transfer credit risk to a counterparty without selling the underlying loan. Securitization: pool loans, sell to an SPV, SPV issues tranched...
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- Example 2
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