Customer Reviews

Credit Derivatives Pricing Models: Model, Pricing and Implementation

5 star:		(1)
4 star:		(5)
3 star:		(1)
2 star:		(1)
1 star:		(2)

 

 

The state of theory is in such tremendous flux at present with a majority of research unpublished and a growing consensus that the state of the art is entirely inadequate. No book could possibly please industry researchers at this point, but Philipp contributes some ideas and clarification here and there and some leads which are valuable. He is perhaps a little dismissive and pessimistic when the theory wanders into hard mathematical problems, and to to a large extent his book ends where the fun stuff begins. Nontheless I would recommend, especially to those entering the field.

The book covers the basics of credit risk modeling and derivative pricing (both structural and intensity type of models), explained in a clear style with enough detail to enable implementation (a rarity in financial literature!). Basics of the theory of stochastic processes and risk-neutral pricing are also covered. Calibration methods for the models are clearly explained. Due to the limited scope, some topics are given only cursory coverage (Copula function methods, role of interest-rates models etc.), but even then, enough references are provided. A very useful, concisely written tome!

The book is a look at credit risk through the glasses of mathematics, and is not a beginner's book. It is a bit dry in the beginning, yet after that I discovered lots of valuable intuitive explanations. While it does require a certain level of probability knowledge, the author walks you through most necessary steps for the presented models. The book covers almost everything needed for an intermediate course on credit modelling. The lack of numerical implementation menthods took the last star.

A very useful text for those who need to understand how to implement a model. In finance, notation and concepts vary widely across different authors and it is often uncertain what the equations behind the model mean. It is helpful to be able to walk through Schonbucher's detailed explanations of assumptions and key ideas within each alternative model choice. His writing in this book is clearer than his earlier papers.

Overall this is a good book for an introduction to the mathematics behind credit derivatives. The mathematics exposition was extensive and fairly well written. However, the notation and definitions could use a glossary or better indexing.

Note, the text does not make any detailed mention of products actually trading on the street. On the other hand, one only needs to understand concepts for classes of similar products.

My real criticism is that the coverage of correlation and correlation products is lacking. Credit markets and correlation products in particular, have evolved quite a bit since this book was published A second volume or additional chapters on these topics are needed.

The book covers the basics of credit risk modeling and derivative pricing (both structural and intensity type of models), explained in a clear style with enough detail to enable implementation (a rarity in financial literature!). Basics of the theory of stochastic processes and risk-neutral pricing are also covered. Calibration methods for the models are clearly explained. Due to the limited scope, some topics are given only cursory coverage (Copula function methods, role of interest-rates models etc.), but even then, enough references are provided. A very useful, concisely written tome!

This book on credit derivatives models is written by an academic without a feel for how the market trades in practice. Schonbucher presents the mathematical equations without expanding on the meaning of the models or their application.

There are some errors of fact when he discusses how certain products work, such as first-to-default baskets, a serious error in and of itself, but unfortunately there are additional similar errors which show the author has an imperfect understanding of the market he writes about. All in all this book was an unsatisfying treatment of the topic.

Nice equations, but hasn't kept up with Ph.D.'s who work on Wall Street and know the theory, thoroughly understand the products, and can apply practical but theoretically sound compromises to accommodate reality. Ph.D.'s at work in finance - including myself (physics) - are probably too busy to write the definitive modelling book. This book fails to address key ingredients such as daycounts, settlement conventions, documentation asymmetry, and more.

The author should rewrite this book. The presentation and organisation are terrible. Often you will see formulas come out without an explanation.

Would definitely not recommend it.

Grab any papers wrote by the market-practitioners, you will find they are much easier for you to understand the concepts of various credit derivatives models than the book could.

BTW, I wrote a negative review in amazon.co.uk, but was deleted twice.

The book is written by a Professor in a insightful way.
The reader needs to be well prepared in knowledge, and be ready for frustration.