Mastering Credit Derivatives: A step-by-step guide to credit derivatives and structured credit, Second Edition

Preface

The credit derivatives business is at a crossroads. This is a market that has enjoyed a phenomenal growth rate over the past ten years or so. Credit events such as Enron, WorldCom, the subprime crisis and the resulting credit crunch have brought down institutions of the calibre of Bear Sterns in the US and Northern Rock in the UK.

Greater liquidity in credit derivatives markets has enabled the development of more sophisticated credit structures, such as complex collateralized debt obligations (CDOs), but the volatility of credit markets has also revealed a fundamental weakness in the way in which most financial firms manage their credit risk.

The lack of prudent house loan lending (not a credit derivative, I may add), combined with the lack ...