CFA® Level II Fixed Income - Modelling Credit Risk and Credit Valuation Adjustment (CVA)

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In this lecture, you’ll gain a deep understanding of key concepts essential for credit risk analysis and valuation.
What You’ll Learn:
1. Hazard Rate and Default Probability:
• Understand the hazard rate and how to calculate the probability of default and survival for each year of a bond’s life.
2. Expected Exposure and Recovery Rate:
• Learn to determine the expected exposure to loss, and how recovery rates and loss severity impact credit risk.
3. Calculating Expected Loss and CVA:
• Discover how to calculate the expected loss for each period and discount these losses to present value to find the Credit Value Adjustment (CVA).
4. Spreadsheet Modelling:
• Get practical tips on using spreadsheets to model credit risk, making complex calculations straightforward and manageable.
By the end of this lecture, you’ll be equipped with the skills to analyze and value risky bonds, crucial for passing your CFA Level II exams and excelling in the finance industry.