Credit Derivatives: A Guide to Instruments and Applications

Credit derivatives have revolutionized the way banks and brokerage firms do business. This book explains the various instruments in the market, the economic value of these instruments and how to value and document these trades. Coverage includes: an overview of the topic; description of the instruments and applications such as credit swaps and options; shorting credits; pricing methods; new structured credit derivatives; the future of the global credit markets; CreditMetrics; tax arbitrage; and emerging market risk.

A comprehensive first look at one of today's fastest growing investment and risk management mechanisms.

"If you want to know more about credit derivatives--and these days an increasing number of people do--then you should read this book." --Merton H. Miller, winner, Nobel Prize in Economics, 1990 Robert R. McCormick Distinguished Service Professor Emeritus, University of Chicago Graduate School of Business.

"Tavakoli brings extraordinary insight and clarity to this fascinating financial evolution. She combines her extensive experience and deep understanding of the derivatives markets with a lucid writing style that makes this an eminently readable volume. This book should set the standard for credit derivatives texts for years to come." --Carl V. Schuman, Manager, Credit Derivatives, WestLB New York.

"Tavakoli does a remarkable job compiling a highly readable and much needed guide to instruments and applications of credit derivatives. Using charts, examples, basic investment theory, and elementary mathematics, Tavakoli explains the real-world practice and applications of credit derivative products. Credit Derivatives clarifies often misunderstood concepts and offers a framework with which to analyze derivatives and how to make them work." --Stephen Wade, Managing Director, UBS Securities LLC Hei Wai Chan, PhD, Director, UBS Securities LLC.

"Tavakoli has written a book that finally demystifies credit derivatives. It is an easy to understand analysis of the many aspects of the basic products used in this new and innovative derivative structure. Anyone in the banking community as well as the sophisticated derivatives professional will find it both useful and insightful." --Randy Allison Kaufman, Managing Director, BankBoston, Structured Derivatives.

One of today's fastest growing investment and risk management mechanisms, credit derivatives are revolutionizing the financial industry and changing the way banks, institutional investors, and securities traders do business both domestically and globally. While potentially beneficial, these important instruments are complex structures that are often misunderstood and frequently mishandled. Written by credit derivatives specialist Janet Tavakoli, this groundbreaking book--the only comprehensive resource of its kind--demystifies and clarifies all the fine points of credit derivatives, offering complete details on what they are, how they work, and how best to capitalize on them.

Though not new, credit derivatives have just recently grabbed the spotlight as vehicles that can diversify portfolio credit risk by dampening the volatility of possible returns. While many investors and end users are beginning to realize the potential of these products, most have only scratched the surface of understanding how they can be applied to credit line and portfolio management, arbitrage opportunities, and the creation of synthetic assets.

Covering these and other current applications, Credit Derivatives provides the foundation necessary to fully grasp and effectively implement these powerful tools. Along with descriptions of the full range of products available in today's marketplace, it explains the economic value of credit derivatives, examines valuation techniques, and, perhaps, most importantly, provides specific guidelines on using them to manage and control risk. Tavakoli demonstrates how credit derivatives have become instruments that enable investors to question, theorize, and create a new framework for evaluating market credit risk.

This accessible and exhaustive guide is must reading for anyone involved in the rapidly growing area of credit derivatives.