Customer Reviews

Credit Derivatives and Structured Credit: A Guide for Investors (The Wiley Finance Series)

5 star:		(0)
4 star:		(2)
3 star:		(0)
2 star:		(0)
1 star:		(0)

 

 

Accidentally, the book is shown in front of me....in library. I spend more than six hours to read it through. It is a nice book which explains different kinds of credit-risk related financial instruments throughly. It is a nice translation which is originated from French.
The are four episodes from the book. The first part is the introduction of credit risk and the regulation of Basel Accord. The second part is the instruments introduction including the building blocks of interest rate swaps, Credit Defaults Swaps (CDS) and its synthetic types. Moreover, it introduces the Basket CDS and other extensions such as credit index-linked type product. Ir should be noted that the CDS seller is the protection buyer and vice versa. Last, it introduces the Collateralized Debt Obligations (CDO) and its extensions such as Cash-flow CDOs, Balance Sheet-Driven CDOs, Arbitrage-Driven Synthetic CDOs. The merit of CDO is that (1) It is the second generation production as the credit is not just
pass-through but redistributed, (2) It has been credit-enhanced by internal or external ways, (3) It is transfered to the bankruptcy-remote SPV the same as the first-generation one. The third part of the book is talking about the pricing model of credit derivatives. The most famous one is the structural model induced from the B-S-M option pricing. Compared with the structural model, the induced model is more complicated as it let the interest rate or other interested one to be an exogenous-given stochastic process and can play the more precise calibration of parameter estimation. But the reduced-model is hard to be extended to the mutivariate case as the structual one for multi-asset consideration. The authors gives deep explanation for the difference in their Chapter 6. The last part of the book has analyzed the credit market situation and hopes to persuade the readers the importance of credit derivatives market. But it also mentions the weakness of the professional market which let the latest credit-crunch disaster happens nowaday. they also provide an interesting viewpoint about the particle finance theory which is first proposed by the former CEO of Bank Trust,Charlies S. Sanford. He thinks in a compete and perfect market, we will see that the role of bank has transformed itself into a pure risk manager. Even the bank has not throughly understand the credit risk it takes, it can easily transfer it to the more experienced bankers or market participants through trading. Unfortunately, it has not happened YET.... In the last part, it also mentions the importance of risk-adjusted return of banks through the RAROC measure which incorporate the ideas of regulated capital, Economic Capital, Expected Loss, Bankiing Net Income to have the ROE-like measure of banking profit.
All in all, it is fascinating and does inspire people to know the credit
risk better. So...it goes....

a very good intro to credit derivs in a qualitative way. if you just started learning credit derivs, it is a nice 1st read. the authors are very knowledgeable about the market and products. but the price is a bit too high.