CDS Delivery Option: Better Pricing of Credit Default Swaps (Hardcover)

by David Boberski (Author)
Key Phrases: credit crunch, cheapest issue, agency futures contract, Wall Street, Fannie Mae, Agency Credit Derivatives Futures Contract (more...)

Editorial Reviews

Product Description

For professionals trying to navigate the increasingly volatile credit default swap market, CDS Delivery Option provides worked-out examples, over 30 charts, a case study of Delphi, and detailed explanations of how the subprime crisis caused the credit crisis and the near collapse of the GSEs.  The book includes detailed information on: how to value a CDS contract, how to value the delivery option, how contract value changes when the yield curve flattens or becomes steeper, how contract value changes with bullish or bearish market moves, how to figure out when to buy protection and when to sell protection, how to hedge CDS risk, when and how to unwind a contract prior to settlement, when to hold a trade through delivery, how to navigate a “squeeze” (when the notional value of contracts going through delivery is larger than the supply of the cheapest-to-deliver issue), when buying contracts can make their prices go down, how to construct a basis trade, how to find arbitrage opportunities, how to analyze default probability and corporate debt, when to settle via auction and when to settle via physical delivery, and which note is the cheapest to deliver. This book is an indispensable resource for all market professionals working in the CDS market.

Book Description

Everything a professional needs to know about credit default swap settlement from how to navigate a squeeze to which issue is cheapest to deliver to a fair value mehthod for pricing the delivery option to how to analyze the market for the underlying debenture. Includes insight into many other important subjects including: Treasury futures mechanics, the binomial tree, designing derivatives contracts, the 2007 meltdown of the ABX, the collapse of Fannie Mae and Freddie Mac and the effect of Fed policy on the yield curve and the housing market..

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Product Details

• Hardcover: 224 pages
• Publisher: Bloomberg Press (January 7, 2009)
• Language: English
• ISBN-10: 157660263X
• ISBN-13: 978-1576602638
• Product Dimensions: 9.1 x 6.5 x 1.1 inches
• Shipping Weight: 13.6 ounces (View shipping rates and policies)
• Average Customer Review: 2.5 out of 5 stars See all reviews (2 customer reviews)
• Amazon.com Sales Rank: #553,256 in Books (See Bestsellers in Books)

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Customer Reviews

Most Helpful Customer Reviews

1.0 out of 5 stars Adds little to current understanding of CDS, April 10, 2009

By	ccw (NYC) - See all my reviews

This book covers a lot of different topics, but a convincing paradigm for better pricing of credit default swaps is not one of them. The overall organization is unfocused and appears pointless. Boberski touches on the current financial crisis, how the cheapest-to-deliver option works in treasury futures, factors to consider in designing a new CDS contract, and an attempt to apply the framework of treasury future cheapest-to-deliver to corporate CDS. This framework appears hypothetical a best, and an illusion at worst. If you're looking for an analysis of the roots of the current crisis, there are better books out there: like Morris' The Trillion Dollar Meltdown or Cooper's The Origin of Financial Crises. I admire the author's attempt to apply the delivery option to corporate bonds, but I don't think it works.

0 of 1 people found the following review helpful:

4.0 out of 5 stars good explanation of the current mess, February 27, 2009

By	W Boudville (Terra, Sol 3) - See all my reviews (TOP 50 REVIEWER)    (REAL NAME)

Well, it's a few months into 2009, after the financial meltdowns of 2008. This is one of the recent books that recaps the events of 2008 and preceding years. It looks at one crucial component that caused so much grief, and is still doing so. Credit Default Swaps. The text gives a good summary of the US housing market and how low interest rates set by the Federal Reserve after 2001 helped propel housing prices. The book argues that the Fed should have raised interest rates far earlier, rather than providing liquidity that helped gin up a historic rise in housing prices and an unfolding and equally historic collapse.

As to the specifics about the CDS delivery option, these are perhaps best meant for professionals in the field. But much of the first half of the book can be read for a good explanation of the current mess we are all in.

The book has a curious omission. It talks about several large firms, Fannie Mae, Bear Stearns, Lehman and others. But nothing about AIG. Yet it now appears that AIG's writing of CDS was perhaps the most extensive of all firms. And the continuing deterioration of CDS prices is leading to even more massive losses for AIG. Why no mention of AIG?