Book description
The credit derivatives industry has come under close scrutiny over the past few years, with the recent financial crisis highlighting the instability of a number of credit structures and throwing the industry into turmoil. What has been made clear by recent events is the necessity for a thorough understanding of credit derivatives by all parties involved in a transaction, especially traders, structurers, quants and investors.
Fully revised and updated to take in to account the new products, markets and risk requirements post financial crisis, Credit Derivatives: Trading, Investing and Risk Management, Second Edition, covers the subject from a real world perspective, tackling issues such as liquidity, poor data, and credit spreads, to the latest innovations in portfolio products, hedging and risk management techniques.
The book concentrates on practical issues and develops an understanding of the products through applications and detailed analysis of the risks and alternative means of trading.
It provides:
a description of the key products, applications, and an analysis of typical trades including basis trading, hedging, and credit structuring;
analysis of the industry standard 'default and recovery' and Copula models including many examples, and a description of the models' shortcomings;
tools and techniques for the management of a portfolio or book of credit risks including appropriate and inappropriate methods of correlation risk management;
a thorough analysis of counterparty risk;
an intuitive understanding of credit correlation in reality and in the Copula model.
The book is thoroughly updated to reflect the changes the industry has seen over the past 5 years, notably with an analysis of the lead up and causes of the credit crisis. It contains 50% new material, which includes copula valuation and hedging, portfolio optimisation, portfolio products and correlation risk management, pricing in illiquid environments, chapters on the evolution of credit management systems, the credit meltdown and new chapters on the implementation and testing of credit derivative models and systems.
The book is accompanied by a CD ROM which contains tools for credit derivatives valuation and risk management, illustrating the models used in the book and also providing a valuation toolkit.
Note: CD-ROM/DVD and other supplementary materials are not included as part of eBook file.
Table of contents
- Dedication
- Title Page
- Copyright Page
- Preface to the First Edition
- Preface to the Second Edition
- Acknowledgements
- Disclaimer
- Table of Spreadsheet Examples and Software
- About the Author
-
Part I - Credit Background and Credit Derivatives
-
Chapter 1 - Credit Debt and Other Traditional Credit Instruments
- 1.1 BONDS AND LOANS; LIBOR RATES AND SWAPS; ‘REPO’ AND GENERAL COLLATERAL RATES
- 1.2 CREDIT DEBT VERSUS ‘RISK-FREE’ DEBT
- 1.3 ISSUE DOCUMENTS, SENIORITY AND THE RECOVERY PROCESS
- 1.4 VALUATION, YIELD AND SPREAD
- 1.5 BUYING RISK
- 1.6 MARKING TO MARKET, MARKING TO MODEL AND RESERVES
- 1.7 THE ‘CREDIT CRUNCH’ AND CORRELATION
- 1.8 PARTIES INVOLVED IN THE CREDIT MARKETS AND KEY TERMINOLOGY
- Chapter 2 - Default and Recovery Data; Transition Matrices; Historical Pricing
- Chapter 3 - Asset Swaps and Asset Swap Spread; z-Spread
- Chapter 4 - Liquidity, the Credit Pyramid and Market Data
- Chapter 5 - Traditional Counterparty Risk Management
- Chapter 6 - Credit Portfolios and Portfolio Risk
- Chapter 7 - Introduction to Credit Derivatives
-
Chapter 1 - Credit Debt and Other Traditional Credit Instruments
-
Part II - Credit Default Swaps and other Single Name Products
- Chapter 8 - Credit Default Swaps; Product Description and Simple Applications
-
Chapter 9 - Valuation and Risk: Basic Concepts and the Default and Recovery Model
- 9.1 THE FUNDAMENTAL CREDIT ARBITRAGE - REPO COST
- 9.2 DEFAULT AND RECOVERY MODEL; CLAIM AMOUNT
- 9.3 DETERMINISTIC DEFAULT RATE MODEL
- 9.4 STOCHASTIC DEFAULT RATE MODEL; HAZARD AND PSEUDO-HAZARD RATES
- 9.5 CALIBRATION TO MARKET DATA
- 9.6 CDS DATA/SOURCES
- 9.7 MODEL ERRORS AND TESTS
- 9.8 CDS RISK FACTORS; RESERVES AND MODEL RISK
- Chapter 10 - CDS Deal Examples
-
Chapter 11 - CDS/Bond Basis Trading
- 11.1 BOND VERSUS CDS: LIQUIDITY
- 11.2 BOND REPO COST
- 11.3 BOND SPREAD MEASUREMENT - z-SPREAD NOT ASSET SWAP SPREAD
- 11.4 BOND PRICE IMPACT
- 11.5 EMBEDDED OPTIONS IN BONDS AND LOANS
- 11.6 DELIVERY OPTION IN CDSs
- 11.7 PAYOFF OF PAR
- 11.8 TRIGGER EVENT DIFFERENCES
- 11.9 EMBEDDED REPO OPTION
- 11.10 PUTTING IT ALL TOGETHER
- Chapter 12 - Forward CDS; Back-to-Back CDS, Mark to Market and CDS Unwind
- Chapter 13 - Credit-Linked Notes
- Chapter 14 - Digital or ‘Fixed Recovery’ CDS
- Chapter 15 - Spread Options, Callable/Puttable Bonds, Callable Asset Swaps, Callable Default Swaps
- Chapter 16 - Total Return Swaps
- Chapter 17 - Single Name Book Management
- Chapter 18 - CDS and Simulation
- Part III - Portfolio Products
- Part IV - Default Swaps Including Counterparty Risk
- Part V - Systems Implementation and Testing
- Part VI - The Credit Crisis
- Appendix - Markit Credit and Loan Indices
- References
- Index
Product information
- Title: Credit Derivatives: Trading, Investing and Risk Management, Second Edition
- Author(s):
- Release date: April 2010
- Publisher(s): Wiley
- ISBN: 9780470686447
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