Stratégie quantitative: application au marché du crédit

J. Turc

This course runs from February to March, 3 hours per week.

This course is designed to give students a taste of how quantitative analysis can be used to develop trading and investment strategies. Moving away from pricing, quantitative analysts dedicated to strategy must innovate to invent models that capture the real dynamics of financial products and generate trading ideas. These analysts are becoming increasingly important in the proprietary trading desks of major banks and some quantitative hedge funds. The focus of the course will be on quantitative strategies in the credit market.

Overview of the credit market

  • Participants
  • Regulations
  • Impact of rating: Investment Grade versus High Yield
  • Credit spreads along the credit cycle
  • Relationship between credit spreads and other markets
  • Modelling the dynamics of credit spreads
  • Brief review of the main credit products and their players: bonds, CDS, CDOs

Risks and strategies

  • Line-by-line investment strategies
    • Avoiding defaults with firm models (KMV, Merton…)
    • Assessing event risk using decision making models
  • Line-by-line relative value strategies
    • Generating alpha using baskets of assets (CDS, bonds…): description of a statistical method to find stationary combinations of assets
    • Playing the base between CDS and bonds
    • Modelling the CDS curve: a model that calibrates to the market curve and allows to detect trading opportunities
    • Arbitrage of issuers' capital structure: credit-equity trading (opportunity detection, hedging), valuation of equity-credit hybrids, subordinated bonds with options
  • Credit index strategies
    • Index replication trading
    • How to play indices against each other? Which hedging strategy? How to detect opportunities
  • CDO Strategies
    • Investment strategies: why do investors choose CDOs? Is there an arbitrage? What residual risks remain in the books of investment banks?
    • Relative value strategies: which CDO tranche offers the most value?