Handbook of credit derivatives / edited by Jack Clark Francis, Joyce Frost, J. Gregg Whittaker.

Format:

Book

Contributor:

Francis, Jack Clark.

Frost, Joyce

Whittaker, J. Gregg

Ellis D. Williams, College 1865, Endowment Fund.

Series:

Irwin library of investment & finance

Irwin library of investment and finance

Language:

English

Subjects (All):

Credit derivatives.

Physical Description:

xxiii, 392 pages : illustrations ; 24 cm.

Place of Publication:

New York : McGraw-Hill, [1999]

Summary:

For financial professionals, credit derivatives are uniquely powerful tools to manage credit risk--tools that are less costly and more effective than traditional methods. Investors, on the other hand, appreciate the efficiency with which they can use credit derivatives to easily access different sectors of the credit markets. Regardless of your perspective, The Handbook of Credit Derivatives will give you expert knowledge and insights into credit-derivatives, arm you with the latest professional tactics and techniques for pricing and evaluating these versatile securities, and help you get your arms around today's most exciting, rewarding risk management and investment tool.

Contents:

Part 1 Introduction

Chapter 1 An Introduction to Credit Derivatives / Robert S. Neal, Ph.D., Douglas S. Rolph, Ph.D. 3

Credit Risk 4

Managing Risk with Credit Derivatives 10

Credit Derivatives: Risks and Regulatory Issues 16

Part 2 Investment and Risk Management Applications

Chapter 2 Building Efficient Synthetic Positions and Using Credit-Linked Notes / J. Gregg Whittaker, Ph.D., Evy Adamidou, Ph.D. 27

The Basic Structures 28

Investment Applications 32

Future Market Development 40

Chapter 3 Credit Derivatives and Loan Portfolio Management / Blythe Masters, Kelly Bryson 43

Key Characteristics of Credit Derivatives 45

Credit Derivative Structures 47

A Portfolio Approach to Credit Risk Management 56

Regulatory Treatment of Credit Derivatives 71

Balance Sheet Management: Traditional and Synthetic Securitizations Using Credit Derivatives 76

Chapter 4 Credit Risk Management from a Corporate Perspective / Joyce A. Frost 87

Identifying and Managing Credit Risk 87

Credit Derivatives as a Hedging Tool 90

Liability Management 96

Part 3 Determining Exposure and Pricing Credit Derivatives

Chapter 5 Pricing Credit Derivatives / Sanjiv R. Das, Ph.D. 101

Abstract 101

Standard Credit Derivative Contracts 103

Technical Approaches to Pricing Credit Derivatives 105

Detailed Modeling of the Spread 114

The Jarrow-Lando-Turnbull (JLT) Model 116

The Das-Tufano (DT) Model 122

The Duffie-Singleton Analysis 133

Conclusions and Other Important Issues for Credit Risk Models 135

Chapter 6 Credit Derivatives Pricing Dictionary / Hardy M. Hodges, Ph.D. 139

Asset Swap Pricing 140

Credit Rating Options 140

Credit Spread 140

Credit Spread Lock 141

Credit Spread Options 141

Default Correlations 143

Default Distribution 144

Default Put Option 144

Default Swap 145

Digital Default Swap 146

Expected Loss/Gain 146

First-To-Default Notes 147

Forward Credit Spread 150

Forward Default Probability 150

KMV 151

Loss in the Event of Default (LIED) 151

Pricing Models 152

Risk-Neutral Pricing 153

Survival Probability 154

Total Return Swap 154

Chapter 7 Using Equity Price Information to Measure Default Risk / Peter J. Crosbie, Ph.D. 157

Measuring Default Probability: The Problem 159

Measuring Default probability: A Practical Approach 164

A Closer Look at Calculating EDFs 171

Calculating Long-Term EDFs 176

Some Frequently Asked Questions About EDFs 177

Testing the Default Measure's Performance 186

Summary and Discussion 191

Chapter 8 Challenges in the General Valuation of Credit Derivatives / Mark A. Gold, Ph.D. 193

Valuation of Interest Rate and Currency Derivatives 194

Problems in the Enforcement of Credit Derivative Valuations 195

Problems in the Application of Option Theory to Credit Derivative Valuation 196

Modeling the Credit Evolutionary Process 198

Credit Interrelationships among Portfolio Assets 199

Forms of Third Party Credit Enhancement 200

Regulatory Inconsistencies in the Treatment of Different Forms of Credit Insurance 201

Concessionary Pricing 202

Credit Arbitrage 203

Part 4 Accounting, Tax, Legal, And Regulatory Environment

Chapter 9 Accounting for Credit Derivatives / John T. Lawton 207

Total Return Swaps 208

Credit Spread Options 212

Credit Default Products 213

Securities with Embedded Credit Products 215

Disclosures 217

Chapter 10 The Federal Income Tax Treatment of Credit Derivative Transactions / Bruce Kayle, J. D. 221

Types of Credit Derivative Transactions 222

Analysis of Credit Derivative Transactions 230

Chapter 11 Credit Derivatives: Legal and Regulatory Issues / David Felsenthal, J. D., M. Sharmini Mahendran 277

Bank Regulation 277

Insurance Regulation 282

Gambling Laws 285

Confidentiality 286

Netting 288

Securities Laws and Insider Dealing 290

Chapter 12 The Supervision of Credit Derivative Activities of Banking Organizations / Daniel C. Staehle, Christine M. Cumming, Ph.D. 293

What are Credit Derivatives? 295

How are Banks Using Credit Derivatives? 299

What is New and Unique about Credit Derivatives from a Supervisor's Viewpoint? 300

Capital Treatment of Credit Derivatives for Banks 303

Capital Charges Under the Derivatives Approach and the Direct Credit Substitutes Approach 308

Capital Treatment for Banks Dealing Credit Derivatives 310

The Impact of Credit Derivatives on Assessments of Bank's Asset Quality 314

Impact of Credit Derivatives on Credit Concentrations 316

Risk Management and Internal Controls 318

Appendix to Chapter 12 324

Rating 1 (Strong) 324

Rating 2 (Satisfactory) 324

Rating 3 (Fair) 325

Rating 4 (Marginal) 325

Rating 5 (Unsatisfactory) 326

Chapter 13 The Use of Credit Derivatives in Credit-Enhanced & Credit-Linked Structured Notes: A Former Rating Analyst's Perspective / David K. A. Mordecai 327

The Role of Credit Derivatives in Off-Balance Sheet and Nonrecourse Financing 327

Credit Arbitrage and Default Risk Intermediation 332

Default Estimation and Credit Derivative Pricing 333

The Role of Asset Volatility in Valuing the Option of Default 336

The Economics of Credit Derivatives as Credit Enhancement 337

Credit-Wrapping Structured Notes: Credit Derivatives from the Simple to the Complex 341

Rating Credit-Linked Structured Notes 343

Credit Arbitrage Strategies 349

Credit-Enhancing Synthetic Note Structures 350

Part 5 The Future Of Credit Derivatives

Chapter 14 The Future of Credit Derivatives / Alden L. Toevs, Ph.D. 357

Credit Derivatives Pass the Tests Necessary for Successful Financial Products 358

Other Factors Affect the Pace, but Not the Ultimate Success, of Credit Derivatives 369

Forces are Now at Work to Address These Limited Factors; thus, Credit Derivative Use Will Grow 374

Appendix: Credit Derivatives Glossary / Judah Kaplan, Douglas S. Rolph, Ph.D. 377.

Notes:

Includes bibliographical references and index.

Local Notes:

Acquired for the Penn Libraries with assistance from the Ellis D. Williams, College 1865, Endowment Fund.

ISBN:

0070225885

OCLC:

40359255