Credit Derivatives: Risk Management, Trading and Investing (The Wiley Finance Series) [Hardcover]

Geoff Chaplin (Author)

Book Description

ISBN-10: 047002416X | ISBN-13: 978-0470024164 | Publication Date: July 18, 2005

The credit derivatives market has developed rapidly over the last ten years and is now well established in the banking community and is increasingly making its presence felt in all areas of finance. This book covers the subject from credit bonds, asset swaps and related ‘real world’ issues such as liquidity, poor data, and credit spreads, to the latest innovations in portfolio products, hedging and risk management techniques. The book concentrates on practical issues and develops an understanding of the products through applications and detailed analysis of the risks and alternative means of trading. Credit Derivatives: Risk Management, Trading and Investing provides:

• A description of the key products, applications, and an analysis of typical trades including basis trading, hedging, and credit structuring
• Analysis of the industry standard ‘default and recovery’ and Copula models including many examples, and a description of the models’ shortcomings
• Tools and techniques for the management of a portfolio or book of credit risks including appropriate and inappropriate methods of correlation risk management
• A thorough analysis of counterparty risk
• An intuitive understanding of credit correlation in reality and in the Copula model

The CD in the back of this book includes an Evaluation Version of Mathcad® 12 Single User Edition, which is reproduced by permission. This software is a fully-functional trial of Mathcad which will expire 30 days from installation. For technical support or more information see http://www.mathcad.com.

Editorial Reviews

From the Back Cover

The credit derivatives market has developed rapidly over the last ten years and is now well established in the banking community and is increasingly making its presence felt in all areas of finance. This book covers the subject from credit bonds, asset swaps and related ‘real world’ issues such as liquidity, poor data, and credit spreads, to the latest innovations in portfolio products, hedging and risk management techniques. The book concentrates on practical issues and develops an understanding of the products through applications and detailed analysis of the risks and alternative means of trading. Credit Derivatives: Risk Management, Trading and Investing provides:

• A description of the key products, applications, and an analysis of typical trades including basis trading, hedging, and credit structuring
• Analysis of the industry standard ‘default and recovery’ and Copula models including many examples, and a description of the models’ shortcomings
• Tools and techniques for the management of a portfolio or book of credit risks including appropriate and inappropriate methods of correlation risk management
• A thorough analysis of counterparty risk
• An intuitive understanding of credit correlation in reality and in the Copula model

The book also includes many spreadsheet examples, a dll for the pricing of CDO structures, and code in MathCad covering a variety of applications.

About the Author

GEOFF CHAPLIN studied mathematics at Cambridge (MA 1972) and Oxford (MSc 1973, DPhil 1975) and qualified as an actuary (FFA 1978) while working in a life insurance company. He moved to the City in 1980 and has worked for major banks (including HSBC, Nomura International, and ABN AMRO) as well as consulting to hedge funds, corporate treasurers, and institutional investment funds. He has been involved in the credit derivatives market since 1996 and has both traded portfolio products and developed risk management systems for these products. In addition to consulting and training for the major financial institutions, Geoff has maintained strong academic interests and was a visiting (emeritus) professor at the University of Waterloo (Canada) from 1987 until 1999. He has also published many articles (in Risk, the Journal of the Institute and Faculty of Actuaries, and others) and speaks regularly at conferences on credit derivatives.

Product Details

• Hardcover: 336 pages
• Publisher: Wiley (July 18, 2005)
• Language: English
• ISBN-10: 047002416X
• ISBN-13: 978-0470024164
• Product Dimensions: 9.8 x 6.8 x 1 inches
• Shipping Weight: 1.8 pounds
• Average Customer Review: 3.8 out of 5 stars  See all reviews (6 customer reviews)
• Amazon Best Sellers Rank: #1,607,875 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

7 of 8 people found the following review helpful:

5.0 out of 5 stars The Credit Derivs MARKET, not just the products, January 11, 2006

By 

Empire City (New York, NY United States) - See all my reviews

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This review is from: Credit Derivatives: Risk Management, Trading and Investing (The Wiley Finance Series) (Hardcover)

I unexpectedly found myself working on a computer project for a credit derivatives desk. I bought several books (Bomfin, Tavakoli, Choudhry) about credit derivatives but found they limited their discussion to just the specific products (TRS, CDS, CDS Index, Baskets, Synthetics, etc.) and their pricing analytics. Chaplin's book is the only one I've read that provides a broader view of the credit derivatives market. For instance, when he discusses the vanilla CDS product he includes such detail as the ISDA based agreement that must be signed by both seller and purchaser, the history of how the terms of the agreement evolved, and how a 'credit event' defined in the agreement is actually settled.

Chaplin's book is the 'how things really work' book of the credit derivatives market. A great resource.

4 of 5 people found the following review helpful:

5.0 out of 5 stars Comprehensive with a very practical approach!, December 6, 2005

By 

Marcel Langer - See all my reviews

This review is from: Credit Derivatives: Risk Management, Trading and Investing (The Wiley Finance Series) (Hardcover)

This book gives a very good insight into the world of credit derivatives. The main products are decribed from a trading as well as from a pricing point of view. The software that comes with it, demonstrates various pricing methods as well as problems and deficits, these modells have.

A must read for everybody who wants to get an insight into the world of credit derivatives.

Well done!

5 of 7 people found the following review helpful:

2.0 out of 5 stars The Chaplin's book does not contain any useful guide for quants, September 9, 2007

By 

D. Poryvay - See all my reviews
(REAL NAME)   

This review is from: Credit Derivatives: Risk Management, Trading and Investing (The Wiley Finance Series) (Hardcover)

I bought this book following misleading title and comments posted here. What I expected the book to contain is not only ISDA documentation and some description of some types of CD but also how to model CD for pricing and hedging. Unfortunately even few formulas presented at the book are not correct (e.g. f. 9.10 at p. 86). The author does not explain how to calculate recovery rates (he seems to believe this is only an assumption without any link to balance sheet!) and does not mention about expected time CD holders have to wait for payoff in case of default. There are only timid attempts to give some approach for pricing models (without Monte Carlo method, Black-Sholes world, measurement of credit risk and explanation why investors should not pay much attention to credit ratings assigned to CD). Taking into account unwinding credit crunch emanating in part from inadequate risk pricing by shaming rating agencies, we should not model CD much based on date from any rating agencies. The book provides a reader with nothing but calculation of probability of default through transition matrices which don't depend on risk-free interest rates.

I found only common wording in form of blah-blah and nothing more, some charts and math attached at appendix are absolutely irrelevant to the main text. Thus I feel disappointed with that I bought. It is not worth money I spent for it. I have rated this book with two stars due to ISDA documentation (it may help those who tend to deep into legislation) and description of some types of CD.
Unfortunately there is a lack of good books covering CD modeling.
If you are a quant, don't buy this book.