Rates
FI6 Credit Risk
Session timeline
Briefing
Trading30 min
Debrief
The case
An investment-grade bond and a lower-grade bond trade together. The lower grade can default.
Objective
Price credit risk between the two grades. Assessed on profit and loss, with closing positions valued at the final value.
What it shows
- Credit risk and the spread that pays for it.
- Two grades of bond priced against each other.
- A default that ends at one of two values.
Watch out for
- Buying the higher yield without asking what it is for.
- Holding the safer bond as if it could not lose.
- A spread that narrows and widens with the room and not with any news.
Who takes part
- Trader — every student. Trades AAA, an investment-grade bond, and BBB, a lower-grade bond.
Class size
Ten to forty students in one role.
Concepts
- Credit risk
Roles
Trader
You trade an investment-grade bond, AAA, and a lower-grade bond, BBB.
- Assessed on profit and loss, with closing positions valued at the final value.
Instruments
| Ticker | Name | Market | Students can |
|---|---|---|---|
| AAA | Investment grade bond | Continuous trading | Trade it |
| BBB | Lower grade bond | Continuous trading | Trade it |
In the tracks
This case is not part of a track. Browse the tracks