Modelling Single-Name and Multi-Name Credit Derivatives

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Juli 2008



Modelling Single-name and Multi-name Credit Derivatives presents an up-to-date, comprehensive, accessible and practical guide to the pricing and risk-management of credit derivatives. It is both a detailed introduction to credit derivative modelling and a reference for those who are already practitioners. This book is up-to-date as it covers many of the important developments which have occurred in the credit derivatives market in the past 4-5 years. These include the arrival of the CDS portfolio indices and all of the products based on these indices. In terms of models, this book covers the challenge of modelling single-tranche CDOs in the presence of the correlation skew, as well as the pricing and risk of more recent products such as constant maturity CDS, portfolio swaptions, CDO squareds, credit CPPI and credit CPDOs. Divided into two parts, part one of this book covers single-name credit derivatives. Reflecting its importance as the building block for most other credit derivatives, the mechanics of the credit default swap (CDS) are covered in considerable detail. A chapter is then devoted to the risk-management of CDS. The pricing and risk-management of forward starting CDS, the option on a CDS and constant maturity CDS are then covered. Part two of the book covers multi-name products and begins with the CDS index. The mechanics and pricing of the CDS index are set out in detail. A chapter on the pricing of options on the CDS index follows. Much of part two of the book is then devoted to the pricing and risk-management of single tranche CDOs. After discussing the Gaussian copula model and the numerical challenge of building the portfolio loss distribution, several chapters are devoted to the subject of modelling the correlation skew. This includes a detailed discussion of base correlation, copula-based skew models and dynamic correlation modelling. Practical and accessible, Modelling Single-name and Multi-name Credit Derivatives does not assume any previous knowledge of credit derivatives. Products are explained in detail as are the requirements of any pricing model. While the book is undoubtedly mathematical, the emphasis is on building intuition, especially regarding the risk sensitivities of the product. Issues such as model requirements, model calibration and stability are addressed. Attention is paid to the need for optimising the computationally efficiency of the implementation, and detailed algorithms are presented which are simple for the reader to convert into their preferred programming language.


About the Author
1 The Credit Derivatives Market
2 Building the Libor Discount Curve
3 Single-name Credit Modelling
4 Bonds and Asset Swaps
5 The Credit Default Swap
6 A Valuation Model for Credit Default Swaps
7 Calibrating the CDS Survival Curve
8 CDS Risk Management
9 Forwards, Swaptions and CMDS
10 CDS Portfolio Indices
11 Options on CDS Portfolio Indices
12 An Introduction to Correlation Products
13 The Gaussian Latent Variable Model
14 Modelling Default Times using Copulas
15 Pricing Default Baskets
16 Pricing Tranches in the Gaussian Copula Model
17 Risk Management of Synthetic Tranches
18 Building the Full Loss Distribution
19 Implied Correlation
20 Base Correlation
21 Copula Skew Models
22 Advanced Multi-name Credit Derivatives
23 Dynamic Bottom-up Correlation Models
24 Dynamic Top-down Correlation Models
Appendix A Useful Formulae




Dominic O'Kane is an affiliated Professor of Finance at the French business school EDHEC which is based in Nice, France. Until May 2006, Dominic O'Kane was a managing director and ran the European Fixed Income Quantitative Research group at Lehman Brothers, the US investment bank. Dominic spent seven of his nine years at Lehman Brothers working as a quant for the credit derivatives trading desk.
EAN: 9780470519288
ISBN: 0470519282
Untertitel: 'Wiley Finance'. 1. Auflage. Sprache: Englisch.
Erscheinungsdatum: Juli 2008
Seitenanzahl: 493 Seiten
Format: gebunden
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