Chaplin, Geoff

Credit Derivatives: Trading, Investing,and Risk Management

Chaplin, Geoff - Credit Derivatives: Trading, Investing,and Risk Management, ebook


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ISBN: 9780470689868
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The credit derivatives industry has come under close scrutiny over the past 2 years, with the Credit Crisis highlighting the instability of a number of credit structures and throwing the industry into turmoil.  What has been made clear by recent events is the necessity for a thorough understanding of credit derivatives by all parties involved in a transaction, from traders, structurers, quants and investors. 

This book covers the subject from a real world perspective, tackling 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 has been thoroughly updated to reflect the changes the industry has seen over the past 5 years, notably with an analysis of the lead up and causes of the credit crisis.  It will contain 50% new material, which will include copula valuation and hedging, portfolio optimisation, portfolio products and correlation risk management, pricing in illiquid environments, chapters on the evolution of credit management systems, the credit meltdown and the mathematics of the credit bubble.

The book is accompanied by a CD ROM which will illustrate the models used in the book and also provide an advanced valuation toolkit.






Part I: Credit Background and Credit Derivatives

1. Credit Debt and other traditional credit instruments

2. Pricing Methods

3. Default & Recovery Data; Transition Matrices; Historical Pricing

4.The Credit Event for Debt

5. Asset Swaps and Asset Swap Spread; z-spread

6. Liquidity

7. Credit portfolios and portfolio risk

Software examples:

Transition matrix based pricing; historical and implied transition matrices

Asset swap, z-spread, maturity spread calculations

Portfolio correlation and VaR

Part II: Credit Default Swaps and other Single Name Products

8. Credit Default Swaps: Product Description, and Simple Applications -

9. Valuation and Risk: Basic Concepts -

10. CDS Deal Examples

11. CDS/Bond Basis Trading

12. Sensitivities; Hedging Issues

13. Credit Linked Notes

14. Digital CDS

15. Basket CDS and Index CDS structures 

16. Spread Options, Callable/Putable Bonds, Callable Asset Swaps, Callable Default Swaps

17. Total Return Swaps

18. Single Name Book management  

19. CDS Pricing by Simulation 

Software examples:

Deterministic model [Excel and MathCad]

Debt valuation [Excel and MathCad]

CDS valuation [Excel and MathCad]

Sensitivity calculation examples [Excel and MathCad]

Part III: Portfolio Products -

Correlated stochastic recovery models,

Semi-closed form solutions,

Structure pricing

Correlation in structures.

CDOs and structured credit products

- synthetic - static and standard index products

- synthetic - bespoke, static and managed

- cashflow CDOs

- securitisations

- rating (update), SPV, applications

- product risks (bubble related to enhanced sales opportunities)

- pricing at 0 and 100% correl

- other portfolio products (contributed)

Copula valuation and hedging (method)


- in the real world and further section on correlation in normal and abnormal environments - e.g. correlation of life policy values.

- matrix and tag

- factor/tranche/compound

- base

- correlated stochastic recovery

- Monte Carlo pricing

- Semi closed form pricing

Application of Copula valuation

- Synthetics: 21.6 to 21.8 rewritten

- Cashflow CDO

- Structures

Portfolio Optimisation (contributed)

Other Copulae

Portfolio Products and Correlation Risk management

Pricing methodologies in illiquid environments

Part IV: Default Swaps including Counterparty Risk - CDS as a portfolio product

Vanilla CDS

Counterparty ("Double trigger") CDS

Part V:-


The Evolution of Credit Management Systems

The Credit Meltdown and rebirth of CDS

The Mathematics of the Bubble

Mathematical Appendix:

List of Abbreviations




John Wiley and Sons, Inc.
Publication year
The Wiley Finance Series
Page amount
320 pages
Printed ISBN

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