April 2010
Intermediate to advanced
406 pages
12h 13m
English
Content preview from Credit Derivatives: Trading, Investing and Risk Management, Second Edition
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.
10
CDS Deal Examples
We now look at a range of applications of the valuation formulae established above. The majority of these applications arise from trading or hedging strategies, and a thorough understanding of the analysis of these examples reveals the sources of risk in the deals and how best to control this risk.
Elementary Trading Strategies
At this point the reader should review the elementary trading strategies discussed in Chapter 8 in the light of the valuation and sensitivity results derived in Chapter 9. In particular, note that the value of a long protection position increases as the current (market) CDS premium increases - equation (9.12). Thus a bearish view (expecting CDS premiums - or bond spreads - to widen) of a particular name can be implemented by buying protection on that name. A bullish view can be reflected by selling protection or by buying bonds.
The following examples are divided into two parts: (a) purely CDS trades and (b) bond and CDS trades. A fuller analysis of CDS/bond (basis) trading is given in Chapter 11, some other CDS applications are covered in Chapter 12, and trading using credit-linked notes (CLNs) is covered in Chapter 13.
Risk Charts
We illustrate trades in this section with a ‘risk chart’ showing the spread sensitivity and the default event sensitivity. These are intended only to give a quick visual impression of the trade - they are not exact, nor do such charts in any sense replace a full risk report (which would include risks ...
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Read now
Unlock full access
More than 5,000 organizations count on O’Reilly
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.Julian F.
I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.Addison B.
I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.Amir M.
I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.