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An Introduction to Credit Derivatives, 2nd Edition

Book Description

The second edition of An Introduction to Credit Derivatives provides a broad introduction to products and a marketplace that have changed significantly since the financial crisis of 2008. Author Moorad Choudhry gives a practitioner's perspective on credit derivative instruments and the risks they involve in a succinct style without sacrificing technical details and scientific precision.

Beginning with foundational discussions of credit risk, credit risk transfer and credit ratings, the book proceeds to examine credit default swaps and related pricing, asset swaps, credit-linked notes, and more. Ample references, appendices and a glossary add considerably to the lasting value of the book for students and professionals in finance.



  • A post-crisis guide to a powerful bank risk management product, its history and its use
  • Liberal use of Bloomberg screens and new worked examples increase hands-on practicality
  • New online set of CDS pricing models and other worksheets multiply the book's uses

Table of Contents

  1. Cover image
  2. Title page
  3. Table of Contents
  4. Copyright
  5. Dedication
  6. About the Author
  7. Foreword
  8. Preface
  9. Preface to the First Edition
  10. Chapter 1. Credit Risk
    1. 1.1 The Concept of Synthetic Investment
    2. 1.2 Banks and Credit Risk Transfer
    3. 1.3 Credit Risk and Credit Ratings
    4. 1.4 Corporate Recovery Rates
  11. Chapter 2. Credit Derivative Instruments: Part I
    1. 2.1 Credit Risk and Credit Derivatives
    2. 2.2 Credit Derivative Instruments
    3. 2.3 Credit Default Swaps
    4. 2.4 Asset swaps
    5. 2.5 Total Return Swaps
    6. 2.6 Index CDS: The iTraxx Index
    7. 2.7 Settlement
    8. 2.8 Risks in Credit Default Swaps
    9. 2.9 Impact of the 2007–2008 Financial Crash: New CDS Contracts and the CDS ‘Big Bang’
    10. References
    11. Appendices
  12. Chapter 3. Credit Derivative Instruments: Part II
    1. 3.1 Credit-Linked Notes
    2. 3.2 CLNs and Structured Products
    3. References
  13. Chapter 4. Credit Derivatives: Basic Applications11Part of this chapter first appeared in Choudhry (2000).
    1. 4.1 Managing Credit Risk
    2. 4.2 Credit Derivatives and Relative Value Trading
    3. 4.3 Bond Valuation from CDS Prices: Bloomberg Screen VCDS
    4. 4.4 Relative Value Trading: Sovereign Names
    5. 4.5 Applications of Total Return Swaps
    6. 4.6 Applications for Portfolio Managers
    7. Reference
  14. Chapter 5. Credit Derivatives Pricing and Valuation
    1. 5.1 Introduction
    2. 5.2 Pricing Models
    3. 5.3 Credit Spread Modelling
    4. 5.4 Product Pricing Approach
    5. 5.5 Credit Curves
    6. References
  15. Chapter 6. Credit Default Swap Pricing
    1. 6.1 Theoretical Pricing Approach
    2. 6.2 Market Pricing Approach
    3. 6.3 Credit Derivatives Pricing in Volatile Environments: ‘Upfront+Constant Spread’
    4. 6.4 Quick CDS Calculator
    5. References and Bibliography
    6. Appendices
  16. Chapter 7. The Asset Swap–Credit Default Swap Basis
    1. 7.1 Asset Swap Pricing
    2. 7.2 The Basis as Market Indicator
    3. 7.3 Analyzing the Basis Spread Measure
    4. 7.4 Market Observations
    5. 7.5 The iTraxx Index Basis
    6. 7.6 Negative Basis Trade: Checking the Theoretical Bond Price
    7. References
  17. Glossary
  18. Index