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Credit Derivative Strategies: New Thinking on Managing Risk and Return

Book Description

Written by professionals for professionals, "Credit Derivative Strategies" is an in-depth, comprehensive guide to investing with credit derivatives. Emphasizing real-world applications, the contributors cover three broad topics:

Investment strategies currently used by insitutional investors and hedge funds, including ways to find opportunities in relative value, distressed debt, and synthetic collateralized debt obligations (CDOs).

Risk management strategies designed to construct and optimize portfolios containing complex risk derivatives, including up-to-date techniques for evaluating event risk.

Pricing and valuation of credit default swaps, CDOs, and other products, including variations of time-to-default copula models.

The contributing authors of this book are practicing professionals with experience in leadership positions at Merrill Lynch, TriPoint Asset Management, UBS, Salomon Smith Barney, Perry Capital, Nomura Securities International, Dalton Investments, Deutsche Bank, Credit Suisse, Kenmar Global Investment Management, and Citigroup.

This book qualifies for 7.5 PDA credits under the guidelines of of the CFA Institute Professional Development Program.

Table of Contents

  1. Praise
  2. Title Page
  3. Copyright Page
  4. ABOUT THE CONTRIBUTORS
  5. Introduction
  6. PART ONE - INVESTMENT STRATEGIES
    1. CHAPTER 1 - Eight Relative Value Opportunities
      1. The Investment Process
      2. Strategies
    2. CHAPTER 2 - Distressed Debt Strategies
    3. CHAPTER 3 - Four Synthetic CDO Trading Strategies
      1. Elementary Portfolio
      2. CDO Portfolios
      3. - Default
      4. Credit Spread
      5. Tranche Pricing Correlation
      6. Trading P&L Case Study
      7. Summary
    4. CHAPTER 4 - Integrating Credit Hedge Funds into a Portfolio of Investments
      1. Credit Hedge Fund Strategies
      2. Performance Profiles
      3. Risk Management and Transparency
      4. Correlations and Diversification
      5. Portfolio Construction
      6. Liquidity and Leverage
      7. Valuation
      8. Sustainability and Scalability
  7. PART TWO - RISK MANAGEMENT STRATEGIES
    1. CHAPTER 5 - Risk Management of Credit Derivatives
      1. A Lexicon of Risks
      2. Single-Name Credit Default Swap
      3. Synthetic CDO
    2. CHAPTER 6 - Risk Management for Multistrategy Funds
      1. Structure
      2. Investment Restrictions
      3. Risk Management
      4. Allocation of the Portfolio
      5. Portfolio Monitoring Tools
      6. Summary
    3. CHAPTER 7 - Integrating Event Risk in Portfolio Construction
      1. Section 1: Defining Measures of Risk
      2. Section 2: Bottom-Up Methodology
      3. Is the Current Portfolio Optimal?
      4. Risk Budgeting or Top-Down Methodology
      5. Summary
  8. PART THREE - PRICING, PRODUCTS, AND PROCEDURES
    1. CHAPTER 8 - Pricing Models
      1. Introduction
    2. CHAPTER 9 - CDS Valuation
      1. Example 1
      2. Example 2
    3. CHAPTER 10 - CDO Valuation
      1. Default Mechanism
      2. Conditional Individual Loss Density
      3. Conditional Portfolio Loss Density
      4. Convolution Integral of Conditional Portfolio Loss Density
      5. Tranche Valuation
      6. Numerical Implementation
      7. Compound and Base Correlation
    4. CHAPTER 11 - Credit Derivative Products
      1. Credit Derivative Defined
      2. Asset Swaps
      3. Total Return Swaps
      4. Credit Default Swaps and Options
      5. Credit Spread Forward and Option
      6. Asset Swap Option
      7. Credit-Linked Notes
      8. Principal-Protected Notes
      9. First-to-Default Basket Options and Swaps
      10. Fully Funded Synthetic CDO
      11. Partially Funded Synthetic CDO
      12. Synthetic Arbitrage CDO
      13. Resecuritizations
      14. Index Products
  9. INDEX
  10. ABOUT BLOOMBERG