Course 2025 - Errors in BT Materials - Topic 1 Foundations of Risk

[Nicole Seaman]

Please use this thread to let us know about any errors, missing/broken links, etc., that you find in the 2025 materials in Topic 1, Foundations of Risk. This keeps our forum organized. We appreciate your cooperation!

PLEASE NOTE: Our Practice Question sets already have links to their specific forum threads where you can post about any errors that you find. This thread is for any other materials (notes, spreadsheets, videos, etc.) where you might find errors.

Please include this information in your post so we can correct errors:

• Chapter
• Page number
• Specific details about the error

 

[Neptune]

Nicole, David,

Hope this belongs here, relates to slides and the corresponding video, namely the P1.T1. Chapter 4 Credit Risk Transfer Mechanisms material. I'm not 100% sure of these being errors but here goes:

T1FRM4Ch4CRTM_v3.pdf: Slide 22 states that for a TRS, the "buyer makes payments of SOFR..." and the "seller makes payments to the buyer in the form of some total return measure...". However, the graph on slide 23, shows the opposite, i.e. buyer pays the seller the underlying asset return, while the seller makes fixed SOFR-based payments. Maybe it works both ways (as a feature of a swap..?) but this is confusing me as a reader. Video describes the slides at face value and makes no mention of whether or not this is an error.

In the related video on slide 27 for a CLN, at the 23:30 mark, the leverage is calculated erroneously as 17x, though 105 / 15 = 7x leverage, no?

Thank you!

 

[CHagn1116]

I noticed this too and have the same question.

I'm also getting confused by what it means by "buyer" and "seller" - is this always the protection buyer/seller, or can it also mean the credit risk buyer/seller? Slide 24 of P1.T.4 indicates that the buyer benefits if the value of the asset rises but slide 23 indicates that the buyer pays coupon plus price appreciation.

 

[Clay Carter]

@Neptune @CHagn1116

This is a fair question, and I want to be clear up front that you’re not misunderstanding the material. The core economics in the slides are correct, but the confusion comes from how the terms “buyer” and “seller” are used, rather than from the mechanics of a total return swap itself. In a TRS, one party receives the total return on the reference asset, coupon plus price appreciation or depreciation—and pays a financing rate such as SOFR. That party is economically long the asset and benefits when its value rises. Across the slides, that role is described consistently in terms of cash flows, but the labels applied to the parties are not always aligned, which is why Slide 22/24 and the diagram on Slide 23 appear to be saying opposite things. The intent was to show the same swap from different perspectives, but we should have been more explicit about that in the narration.

From an FRM standpoint, the best way to read these slides is to forget about buyer/seller and anchor on the cash flows and the risk transfer”. In credit products, those terms (buyer/seller) are not universal: sometimes they refer to protection, sometimes to funding, and sometimes to who is assuming credit risk. That’s what’s happening here. Slide 24 is correct in stating that the party receiving total return benefits when the asset value rises; Slide 23 is showing the opposite leg of the same transaction, but the labeling makes that easy to miss. That’s on us, we should have flagged the convention shift more clearly to avoid exactly this kind of confusion.

On the CLN example, you’re also right to question the leverage number shown in the video. Given the figures on the slide, the leverage is 7×, not 17×, and that’s a simple arithmetic mistake rather than a conceptual issue.