Kothari, Vinod

Credit Derivatives and Structured Credit Trading

Credit is the mainstay of our society. Credit derivatives are concerned with the risk that the promise to pay in a credit transaction is not fulfilled. It is easy to see credit derivatives as hedging devices, but the real growth has been in their ability to transform credit risk into a commodity that can be traded in the same way as equities and bonds. We enter the world of structured credit when exposures are combined into portfolios. A portfolio yields itself to a probability distribution, which, in turn, may be sliced into slices that have different layers of risk. As probability distribution is impacted by external and internal correlation, structured credit also allows trading in correlation risk. From stand-alone single credits to bespoke portfolios to indices, credit derivatives have grown rapidly. Now a mainstream financial instrument, they have been hailed as both a savior and destroyer of financial markets. The book explains in minute details the intricacies of credit derivatives and structured credit trading. It also: delves into the leverage that credit derivatives create as well as the risks and risk mitigants in its growth; explores all the relevant aspects of credit derivatives including legal, tax, accounting and regulatory issues; discusses the complicated issue of pricing and valuation of credit derivatives and collateralized debt obligations in a simple manner backed up with solved examples; and provides solved examples in Excel® worksheets in the accompanying CD. Whether you are an investor, analyst, banker, dealer, lawyer, accountant or regulator, the present book will be of great value to you in understanding the complex world of credit derivatives and structured credit trading.