Risk Management of Credit Derivatives
SANTA FEDERICO, ANDREA PETRELLI, JUN ZHANG, AND VIVEK KAPOOR
Risk management of credit derivatives poses special challenges: credit derivatives confront all the same issues as more traditional credit instruments, such as corporate bonds and loans. However, credit derivatives are also exposed to the gamut of exotic risks—delta, gamma, correlation, and others, that challenge derivatives risk management everywhere. Further, the interaction of credit and market risk presents further challenges to those working with credit derivatives, not to mention a whole new vocabulary of terms, such as senior/subordinate tranches, copula functions, and base correlation.
The purpose of this chapter is to remove ...