Derivatives (FRM Part 2 - Book 2 - Credit Risk Measurement and Management - Ch 14)

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After completing this reading, you should be able to:
- Compare and contrast exchange-traded derivatives and over-the-counter (OTC) derivatives, and discuss the features of their markets.
- Describe the process of clearing a derivative transaction.
- Identify the participants and describe the use of collateralization in the derivatives market.
- Define the International Swaps and Derivatives Association (ISDA) Master Agreement, the risk-mitigating features it provides, and the default events it covers.
- Describe the features and use of credit derivatives and discuss potential risks they may create.
- Describe central clearing of OTC derivatives and discuss the roles, mandate, advantages, and disadvantages of the central counterparty (CCP).
- Explain the margin requirements for both centrally-cleared and non-centrally-cleared derivatives.
- Define special purpose vehicles (SPVs), derivatives product companies (DPCs), monolines, and credit derivatives product companies (CDPCs) and describe the limitations of using them as risk mitigating methods.
- Describe the approaches used and the challenges faced in modeling derivatives risk.

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