Every company faces credit risk. Credit derivatives are among the most powerful tools available for managing it. Once restricted to the financial industry, they are now widely used by businesses of all kinds—and all financial professionals need to understand them. Credit Derivatives, Revised Edition, explains these tools simply, clearly, and rigorously: what they do, how they work, and how to use them in today’s applications.
The authors first show how credit risk can be measured and valued. They explain key ideas, such as recovery rates and credit spreads, and show how derivatives transfer credit risk to external investors. Next, they systematically demonstrate how credit risk models can describe and predict credit risk events. They cover structural models, including Merton and Black and Cox; empirical models, such as the Z-score model; and reduced-form models, such as Jarrow-Turnbull. The authors also present detailed explanations of two widely used instruments: credit default swaps (CDSs) and collateralized debt obligations (CDOs).
Finally, building on what you’ve learned, the authors offer a brand-new primer on today’s applications for financial instruments with embedded credit risk.
FINANCIAL STATEMENT ANALYSIS
Perform preliminary financial analysis on any potential project
UNDERSTAND, MEASURE, AND ASSESS CREDIT RISK
Master core concepts, from credit spreads to default probabilities
MASTER POWERFUL CREDIT RISK MODELING APPROACHES
Learn structural, empirical, and reduced-form credit risk modeling
GAIN DEEP INSIGHT INTO TODAY’S INSTRUMENTS AND APPLICATIONS
Understand CDSs, CDOs, and how credit-sensitive products are now used
FOR EVERY FINANCIAL PRACTITIONER: BUY-SIDE AND SELL-SIDE
For CFOs, treasurers, and other practitioners—everywhere from pension funds to commercial corporations
Table of Contents
Part I: What Is Credit Risk? 1
1 Introduction 3
2 About Credit Risk 9
Part II: Credit Risk Modeling 61
3 Modeling Credit Risk: Structural Approach 63
4 Modeling Credit Risk: Alternative Approaches 123
Part III: Typical Credit Derivatives 149
5 Credit Default Swaps 151
6 Collateralized Debt Obligations 197
7 Applications of Credit Derivatives and Financial Engineering 255