Credit Derivatives: A Guide to Instruments and Applications

by Janet M. Tavakoli

Book Overview

This is the paperback edition of the second edition of Credit Derivatives & Synthetic Structures, a classic finance book by the definitive authority in this field. This description may be from another edition of this product.

• Format: Hardcover
• Language: English
• ISBN: 0471246565
• ISBN13: 9780471246565
• Release Date: June 1998
• Publisher: Wiley
• Length: 272 Pages
• Weight: 1.25 lbs.
• Dimensions: 0.9" x 6.1" x 9.4"

Customer Reviews

An Essential Addition for the Credit Derivatives Trader

Credit derivatives traders and traders of related asset classes such as bonds or asset swaps who want to move into credit derivatives should get this book. Tavakoli starts with an overview of the markets and then examines specific instruments such as total return swaps, credit default swaps, and options, exotic structures and credit linked notes. Synthetic CDOs are also introduced as is are all-important comments on synthetic equity. Credit arbitrage funds also have a section.Documentation, booking and legal issues are explained in an entire chapter devoted to this topic. Tavakoli covers documentation asymmetry, which occurs when two counterparties agree on price, but not on particular points of language in the documentation which leads to basis risk. Anyone trading these products is aware of the potential pitfalls, and these sections alone would make this book an essential read.The book provides only an overview of the various pricing approaches, but discusses the key issues, which revolve around data quality. Particularly irksome are correlation data, default probability data, and data on recovery rates. Traders, marketers, investors, and risk managers who are very quantitative will find this text useful, since it provides a practical guide to pricing in this market. As the author says: "The spread is where the spread is because that's where the market says it is."In this fast growing and evolving market, this is a pragmatic and theoretically sound approach to the market. This book is an essential addition to the finance library of anyone trading or wanting to learn more about credit derivatives.

This trader's favorite credit derivatives reference

It seems the same reviewer felt strongly enough to post two negative reviews, and oddly the previous review echoes the words of a fellow who is coming out with his own book on this subject, so it seems the reviewer is the same person with a self-interested agenda. I believe this fellow works for one of my competitors in London, but seems to want to style himself as being from either London or NY based on reviews he seems to have posted on Tavakoli's other book. I'm sure he hopes his books do as well, so perhaps the one and two star reviews should be taken as a form of twisted homage.I've traded credit derivatives for five years. Tavakoli's book is an authoritative account of this market. I keep it on my trading desk and refer to it. Even though I wish Tavakoli would write a third edition, the product descriptions are comprehensive and classic for today's market and I see this book on every trading floor in Europe. One head of structured credit products also remarked on this and said he sees this book whenever he travels on business in Europe or the U.S. It has become the reference of choice in clarifying language and definitions in the credit derivatives market. The explanations of pricing and data issues suggest common sense approaches for determining value. In addition, the way this book is written prevents a difficult subject from being boring. A trader at a conference I attended recently paraphrased Tavakoli's section on Korean credit protection and correlation, because the point was so well made, and this issue keeps reappearing in various forms in our market. A job well done. The market seems to have voted with me in the sales and longevity of this book.

Products, Applications, and Pricing Direction

Credit derivatives are a very hot topic with the growth rate surpassing all expectations. Some estimates are at more than $3 trillion for 2003, a 50% increase over 2002, and the pace continues. This is the only book on the market that clearly explains the various types of credit derivatives products. This book is also an entertaining read which is unusual for serious finance books. It is rightly noted that this is not for raw beginners, but for people with some finance experience or education. Tavakoli covers structured financings such as total return swaps, which are used for leverage by hedge funds. All of the various types of credit derivatives and their uses and abuses are thoroughly explained. This book also covers off-shore vehicles, currency convertibility, CDO equity, principal protected notes, credit-linked notes, and much more. She also points out the challenge the lack of data - for instance, correlation data - poses to any pricing model. The ISDA language section could use updating, but as the author points out early on, you have to understand the language, regulatory, and accounting issues and why the issues are important and get the updates, since these things are always in a state of flux. She does an excellent job of explaining the issues and provides guideposts for future learning.

Excellent Primer and Reference Resource

Tavakoli has done an artful job in Credit Derivatives ( 2nd Edition) of simplifying complex subject matter through the use of practical examples, good graphics, and simple declarative sentences supported by math and real world experience. While this book is not intended for pure novices with no background in finance or mathematics, it does meet the purposeful, educated reader halfway. I would highly recommend Credit Derivatives to anyone with a need to understand the theory, mechanics, risks and real world applications of credit derivatives. Tavakoli's skill of explaining a complex topic without dumbing it down makes Credit Derivatives an excellent primer and reference book for understanding and managing the use of credit derivatives. If you need to understand credit derivatives, this is a great book. As a consultant, Tavakoli's book was invaluable in helping me expeditiously get up to speed on this area of financial risk management.

Perfect for beginners, excellent reference for veterns

Takavoli's book is the prefect credit derivatives resource for novices and finance professionals who work around, but not with the products. Various forms of credit derivatives are explained in for the most part, qualatative narratives complimented with dealflow charts and information grids. The text remains very readable and comprehensible. That is why its perfect for someone who needs to get a basic grasp of the products, but would be intimidated by a heavy quant reading. This book also includes basic documentation for each of the profiled products.