- Hardcover: 514 pages
- Publisher: Wiley; 1 edition (August 4, 2008)
- Language: English
- ISBN-10: 0470519282
- ISBN-13: 978-0470519288
- Product Dimensions: 6.8 x 1.3 x 9.8 inches
- Shipping Weight: 2.5 pounds (View shipping rates and policies)
- Average Customer Review: 6 customer reviews
- Amazon Best Sellers Rank: #1,280,061 in Books (See Top 100 in Books)
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Modelling Single-name and Multi-name Credit Derivatives 1st Edition
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From the Inside Flap
“This book provides a unique, in-depth and comprehensiveanalysis of the modelling issues faced by credit modellers in thecredit derivatives market.”
—Frank J. Fabozzi, PhD, CFA, Professor in the Practiceof Finance, Yale School of Management
Dominic O'Kane's many years of practical experience in creditderivative markets are evident everywhere in this well-rounded,lucid, and informative book. The author does an admirable job ofcovering both basic and advanced topics, throughout emphasizingsubstance over technicalities. The product coverage of the text isextensive, with virtually all practically relevant creditderivatives carefully described and analyzed. Both beginners andseasoned pros can learn from O’Kane’s insights and hisbook deserves a wide readership. Highly recommended.”
—Leif Andersen, Head of Quantitative Research, Banc ofAmerica Securities
From the Back Cover
Modelling Single-name and Multi-name Credit Derivativespresents an up-to-date, comprehensive, accessible and practicalguide to the pricing and risk-management of credit derivatives. Itis both a detailed introduction to credit derivative modelling anda reference for those who are already practitioners.
This book is up-to-date as it covers many of the importantdevelopments which have occurred in the credit derivatives marketin the past 4-5 years. These include the arrival of the CDSportfolio indices and all of the products based on these indices.In terms of models, this book covers the challenge of modellingsingle-tranche CDOs in the presence of the correlation skew, aswell as the pricing and risk of more recent products such asconstant maturity CDS, portfolio swaptions, CDO squareds, creditCPPI and credit CPDOs.
Divided into two parts, part one of this book covers single-namecredit derivatives. Reflecting its importance as the building blockfor most other credit derivatives, the mechanics of the creditdefault swap (CDS) are covered in considerable detail. A chapter isthen devoted to the risk-management of CDS. The pricing andrisk-management of forward starting CDS, the option on a CDS andconstant maturity CDS are then covered.
Part two of the book covers multi-name products and begins withthe CDS index. The mechanics and pricing of the CDS index are setout in detail. A chapter on the pricing of options on the CDS indexfollows. Much of part two of the book is then devoted to thepricing and risk-management of single tranche CDOs. Afterdiscussing the Gaussian copula model and the numerical challenge ofbuilding the portfolio loss distribution, several chapters aredevoted to the subject of modelling the correlation skew. Thisincludes a detailed discussion of base correlation, copula-basedskew models and dynamic correlation modelling.
Practical and accessible, Modelling Single-name andMulti-name Credit Derivatives does not assume any previousknowledge of credit derivatives. Products are explained in detailas are the requirements of any pricing model. While the book isundoubtedly mathematical, the emphasis is on building intuition,especially regarding the risk sensitivities of the product. Issuessuch as model requirements, model calibration and stability areaddressed. Attention is paid to the need for optimising thecomputationally efficiency of the implementation, and detailedalgorithms are presented which are simple for the reader to convertinto their preferred programming language.
Top customer reviews
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There is a good balance between theory and the practical aspects in the subject matter.
Usually, there is a divergence between theory and practice, but O'Kane addresses these divergences well i.e. MTM,risk management & hedging of CDS contracts (and its variations)
O'Kane successully simplifies the complex into the simple with clear, concise language in a structured, logical manner without bombarding the reader with complicated mathematical proof/ambiguous logical arguments i.e. why a one-factor latent variable model is insufficient to model the correlation structure of an n-name portfolio etc..
I believe the dilligent reader can eventually develop his/her own intuition and can understand the logic behind the structure of the equations
Before graduating to the current literature of credit derivatives, this book provides a very strong foundation to build upon.
Personally, I prefer O'Kane's pedagogical style/treatment of the subject matter (credit derivatives) over Hull/White's treatment in their classic "Options, Futures and Other Derivatives"
This book has given me a better, clearer and more structured understanding of credit derivatives in general.
Hopefully O'Kane can write a book along similar lines for the other asset classes ie interest rate/fx.
O'Kane's book remedies this situation. The book starts with a helpful discussion of fixed income products in general and then proceeds to outline techniques for pricing CDS, CDS Swaptions and Credit Correlation products.
In my view, the author writes very clearly. Some of the most helpful features of the book are:
1. Derivation of key results in detail.
2. Frequent use of examples (although it would be possible to improve the discussion and presentation of some of the examples).
3. Inclusion of detailed product information (e.g. upfront CDS payments, CDS payments between coupon dates etc).
4. Provision of both accurate prices and useful approximations, with associated discussion of when each should be used.
5. Provision of algorithms used to calibrate market inputs (e.g. CDS curves), although some more detailed examples (possibly online rather than in the book itself) would have been helpful here.
I have also read several of the author's published articles with Lehman Brothers. The book is much better than these, in my view, as it is written more clearly and pedagogically (e.g. it does not skip intermediate results as much as the articles).
Someone with no prior experience with credit derivatives should be able to learn a great deal from this book. However, the book is fairly comprehensive; therefore, even those with experience with such products will likely be able to gain from the author's knowledge of theoretical concepts and practical market-driven issues.