Understanding Credit Derivatives and Related Instruments

Understanding Credit Derivatives and Related Instruments

by Antulio N. Bomfim
Released December 2004
Publisher(s): Academic Press
ISBN: 9780121082659

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Book description

Understanding Credit Derivatives offers a comprehensive introduction to the credit derivatives market. Rather than presenting a highly technical exploration of the subject, it offers intuitive and rigorous summaries of the major subjects and the principal perspectives associated with them. The centerpiece is pricing and valuation issues, especially discussions of different valuation tools and their use in credit models.

* Offers a broad overview of this growing field
* Discusses all the main types of credit derivatives
* Provides back-of-the-book summary of statistics and fixed-income mathematics

Table of contents

  1. Front Cover
  2. Understanding Credit Derivatives and Related Instruments
  3. Copyright Page
  4. Contents (1/2)
  5. Contents (2/2)
  6. Part I: Credit Derivatives: Definition, Market, Uses
    1. Chapter 1. Credit Derivatives: A Brief Overview
      1. 1.1 What are Credit Derivatives?
      2. 1.2 Potential "Gains from Trade"
      3. 1.3 Types of Credit Derivatives
      4. 1.4 Valuation Principles (1/2)
      5. 1.4 Valuation Principles (2/2)
      6. 1.5 Counterparty Credit Risk (Again)
    2. Chapter 2. The Credit Derivatives Market
      1. 2.1 Evolution and Size of the Market
      2. 2.2 Market Activity and Size by Instrument Type
      3. 2.3 Main Market Participants
      4. 2.4 Common Market Practices
    3. Chapter 3. Main Uses of Credit Derivatives
      1. 3.1 Credit Risk Management by Banks
      2. 3.2 Managing Bank Regulatory Capital
      3. 3.3 Yield Enhancement, Portfolio Diversification
      4. 3.4 Shorting Corporate Bonds
      5. 3.5 Other Uses of Credit Derivatives
      6. 3.6 Credit Derivatives as Market Indicators
  7. Part II: Main Types of Credit Derivatives
    1. Chapter 4. Floating-Rate Notes
      1. 4.1 Not a Credit Derivative...
      2. 4.2 How Does It Work?
      3. 4.3 Common Uses
      4. 4.4 Valuation Considerations
    2. Chapter 5. Asset Swaps
      1. 5.1 A Borderline Credit Derivative...
      2. 5.2 How Does It Work?
      3. 5.3 Common Uses
      4. 5.4 Valuation Considerations (1/2)
      5. 5.4 Valuation Considerations (2/2)
    3. Chapter 6. Credit Default Swaps
      1. 6.1 How Does It Work?
      2. 6.2 Common Uses
      3. 6.3 Valuation Considerations (1/2)
      4. 6.3 Valuation Considerations (2/2)
      5. 6.4 Variations on the Basic Structure
    4. Chapter 7. Total Return Swaps
      1. 7.1 How Does It Work?
      2. 7.2 Common Uses
      3. 7.3 Valuation Considerations
      4. 7.4 Variations on the Basic Structure
    5. Chapter 8. Spread and Bond Options
      1. 8.1 How Does It Work?
      2. 8.2 Common Uses
      3. 8.3 Valuation Considerations
      4. 8.4 Variations on Basic Structures
    6. Chapter 9. Basket Default Swaps
      1. 9.1 How Does It Work?
      2. 9.2 Common Uses
      3. 9.3 Valuation Considerations
      4. 9.4 Variations on the Basic Structure
    7. Chapter 10. Portfolio Default Swaps
      1. 10.1 How Does It Work?
      2. 10.2 Common Uses
      3. 10.3 Valuation Considerations
      4. 10.4 Variations on the Basic Structure
    8. Chapter 11. Principal-Protected Structures
      1. 11.1 How Does It Work?
      2. 11.2 Common Uses
      3. 11.3 Valuation Considerations
      4. 11.4 Variations on the Basic Structure
    9. Chapter 12. Credit-Linked Notes
      1. 12.1 How Does It Work?
      2. 12.2 Common Uses
      3. 12.3 Valuation Considerations
      4. 12.4 Variations on the Basic Structure
    10. Chapter 13. Repackaging Vehicles
      1. 13.1 How Does It Work?
      2. 13.2 Why Use Repackaging Vehicles?
      3. 13.3 Valuation Considerations
      4. 13.4 Variations on the Basic Structure
    11. Chapter 14. Synthetic CDOs
      1. 14.1 Traditional CDOs
      2. 14.2 Synthetic Securitization (1/2)
      3. 14.2 Synthetic Securitization (2/2)
  8. Part III: Introduction to Credit Modeling I: Single-Name Defaults
    1. Chapter 15. Valuing Defaultable Bonds
      1. 15.1 Zero-coupon Bonds
      2. 15.2 Risk-neutral Valuation and Probability
      3. 15.3 Coupon-paying Bonds
      4. 15.4 Nonzero Recovery
      5. 15.5 Risky Bond Spreads
      6. 15.6 Recovery Rates
    2. Chapter 16. The Credit Curve
      1. 16.1 CDS-implied Credit Curves (1/2)
      2. 16.1 CDS-implied Credit Curves (2/2)
      3. 16.2 Marking to Market a CDS Position
      4. 16.3 Valuing a Principal-protected Note
      5. 16.4 Other Applications and Some Caveats
    3. Chapter 17. Main Credit Modeling Approaches
      1. 17.1 Structural Approach (1/3)
      2. 17.1 Structural Approach (2/3)
      3. 17.1 Structural Approach (3/3)
      4. 17.2 Reduced-form Approach (1/3)
      5. 17.2 Reduced-form Approach (2/3)
      6. 17.2 Reduced-form Approach (3/3)
      7. 17.3 Comparing the Two Main Approaches
      8. 17.4 Ratings-based Models
    4. Chapter 18. Valuing Credit Options
      1. 18.1 Forward-starting Contracts
      2. 18.2 Valuing Credit Default Swaptions
      3. 18.3 Valuing Other Credit Options
      4. 18.4 Alternative Valuation Approaches
      5. 18.5 Valuing Bond Options
  9. Part IV: Introduction to Credit Modeling II: Portfolio Credit Risk
    1. Chapter 19. The Basics of Portfolio Credit Risk
      1. 19.1 Default Correlation
      2. 19.2 The Loss Distribution Function (1/2)
      3. 19.2 The Loss Distribution Function (2/2)
      4. 19.3 Default Correlation and Loss Distribution
      5. 19.4 Monte Carlo Simulation: Brief Overview (1/2)
      6. 19.4 Monte Carlo Simulation: Brief Overview (2/2)
      7. 19.5 Conditional vs. Unconditional Loss Distributions
      8. 19.6 Extensions and Alternative Approaches
    2. Chapter 20. Valuing Basket Default Swaps
      1. 20.1 Basic Features of Basket Swaps
      2. 20.2 Reexamining the Two-Asset FTD Basket
      3. 20.3 FTD Basket with Several Reference Entities
      4. 20.4 The Second-to-Default Basket
      5. 20.5 Basket Valuation and Asset Correlation
      6. 20.6 Extensions and Alternative Approaches
    3. Chapter 21. Valuing Portfolio Swaps and CDOs
      1. 21.1 A Simple Numerical Example
      2. 21.2 Model-based Valuation Exercise
      3. 21.3 The Effects of Asset Correlation
      4. 21.4 The Large-Portfolio Approximation
      5. 21.5 Valuing CDOs: Some Basic Insights
      6. 21.6 Concluding Remarks
    4. Chapter 22. A Quick Tour of Commercial Models
      1. 22.1 CreditMetrics
      2. 22.2 The KMV Framework
      3. 22.3 CreditRisk+
      4. 22.4 Moody's Binomial Expansion Technique
      5. 22.5 Concluding Remarks
    5. Chapter 23. Modeling Counterparty Credit Risk
      1. 23.1 The Single-Name CDS as a "Two-Asset Portfolio"
      2. 23.2 The Basic Model
      3. 23.3 A CDS with No Counterparty Credit Risk
      4. 23.4 A CDS with Counterparty Credit Risk (1/2)
      5. 23.4 A CDS with Counterparty Credit Risk (2/2)
      6. 23.5 Other Models and Approaches
      7. 23.6 Counterparty Credit Risk in Multi-name Structures
      8. 23.7 Concluding Thoughts
  10. Part V: A Brief Overview of Documentation and Regulatory Issues
    1. Chapter 24. Anatomy of a CDS Transaction
      1. 24.1 Standardization of CDS Documentation
      2. 24.2 When a Credit Event Takes Place...
      3. 24.3 The Restructuring Debate
      4. 24.4 Valuing the Restructuring Clause
    2. Chapter 25. A Primer on Bank Regulatory Issues
      1. 25.1 The Basel II Capital Accord
      2. 25.2 Basel II Risk Weights and Credit Derivatives
      3. 25.3 Suggestions for Further Reading
  11. Appendix A. Basic Concepts from Bond Math
    1. A.1 Zero-coupon Bonds
    2. A.2 Compounding
    3. A.3 Zero-coupon Bond Prices as Discount Factors
    4. A.4 Coupon-paying Bonds
    5. A.5 Inferring Zero-coupon Yields from the Coupon Curve
    6. A.6 Forward Rates
    7. A.7 Forward Interest Rates and Bond Prices
  12. Appendix B. Basic Concepts from Statistics
    1. B.1 Cumulative Distribution Function
    2. B.2 Probability Function
    3. B.3 Probability Density Function
    4. B.4 Expected Value and Variance
    5. B.5 Bernoulli Trials and the Bernoulli Distribution
    6. B.6 The Binomial Distribution
    7. B.7 The Poisson and Exponential Distributions
    8. B.8 The Normal Distribution
    9. B.9 The Lognormal Distribution
    10. B.10 Joint Probability Distributions
    11. B.11 Independence
    12. B.12 The Bivariate Normal Distribution
  13. Bibliography (1/2)
  14. Bibliography (2/2)
  15. Index (1/2)
  16. Index (2/2)

Product information

  • Title: Understanding Credit Derivatives and Related Instruments
  • Author(s): Antulio N. Bomfim
  • Release date: December 2004
  • Publisher(s): Academic Press
  • ISBN: 9780121082659