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.
Book Details:
- Author: Dominic O’Kane
- ISBN: 9780470519288
- Year Published: 2007
- Pages: 514
- BISAC: BUS027000, BUSINESS & ECONOMICS/Finance
About the Book and Topic:
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.
The credit derivatives market has experienced considerable growth over the past ten years. The primary purpose of credit derivatives is to enable the efficient transfer and repackaging of credit risk. Banks in particular are using credit derivatives to hedge credit risk, reduce risk concentrations on their balance sheets and free up regulatory capital in the process. In their simplest form credit derivatives provide a more efficient way to replicate in derivative form the credit risks that would otherwise exist in a standard cash instrument. In their more exotic form, credit derivatives enable the credit profile of a particular asset or group of assets to be split up and redistributed into a more concentrated or diluted form that appeals to the various risk appetites of investors.
REPUTATION OF AUTHOR. Excellent reputation of author. This is his first book and there will be significant interest in this. He is known as the Master of correlation in credit amongst quants and Schonbucher widely cites him in his own book on Credit Derivatives Pricing Models (Wiley). WEBSITE containing excel spreadsheets which will allow users to model, play with their numbers etc. Will include VB code that users can convert to C++ SIZE OF CREDIT DERIVATIVES MARKET. Now over £3 trillion. Whilst banks are the major users of credit derivatives, insurers and reinsurers are growing rapidly in importance as users.
About the Author
Dominic OKane, London England. Dominic was managing director charged with running the whole of the quantitative research group at Lehman Brothers in London until May 2006. Of his 9 years at Lehman, he spent the last seven leading the construction of the analytical models for the development of Lehmans credit derivatives, and especially its correlation trading business. He did a significant amount of client facing work and authored several client publications and research papers on the credit derivatives market. Before working in finance he was a post-doctoral researcher in the mathematics department at Imperial College, London and has a PhD in theoretical physics from Oxford University. From 2000-2004 he taught the credit derivatives module at the Oxford University Masters Degree in Finance. He has made numerous presentations at Risk conferences and training courses, at the ICBI conferences and at WBS conferences and training.