Every company faces credit risk. Credit derivatives are among the most powerful tools available for managing it. Once restricted to the financial industry, they are now widely used by businesses of all kinds—and all financial professionals need to understand them. Credit Derivatives, Revised Edition, explains these tools simply, clearly, and rigorously: what they do, how they work, and how to use them in today’s applications. The authors first show how credit risk can be measured and valued. They explain key ideas, such as recovery rates and credit spreads, and show how derivatives transfer credit risk to external investors. Next, they systematically demonstrate how credit risk models can describe and predict credit risk events. They cover structural models, including Merton and Black and Cox; empirical models, such as the Z-score model; and reduced-form models, such as Jarrow-Turnbull. The authors also present detailed explanations of two widely used instruments: credit default swaps (CDSs) and collateralized debt obligations (CDOs). Finally, building on what you’ve learned, the authors offer a brand-new primer on today’s applications for financial instruments with embedded credit risk. FINANCIAL STATEMENT ANALYSIS Perform preliminary financial analysis on any potential project UNDERSTAND, MEASURE, AND ASSESS CREDIT RISK Master core concepts, from credit spreads to default probabilities MASTER POWERFUL CREDIT RISK MODELING APPROACHES Learn structural, empirical, and reduced-form credit risk modeling GAIN DEEP INSIGHT INTO TODAY’S INSTRUMENTS AND APPLICATIONS Understand CDSs, CDOs, and how credit-sensitive products are now used FOR EVERY FINANCIAL PRACTITIONER: BUY-SIDE AND SELL-SIDE For CFOs, treasurers, and other practitioners—everywhere from pension funds to commercial corporations
The credit risk market is the fastest growing financial market in the world, attracting everyone from hedge funds to banks and insurance companies. Increasingly, professionals in corporate finance need to understand the workings of the credit risk market in order to successfully manage risk in their own organizations; in addition, some wish to move into the field on a full-time basis. Most books in the field, however, are either too academic for working professionals, or written for those who already possess extensive experience in the area. Credit Derivatives fills the gap, explaining the credit risk market clearly and simply, in language any working financial professional can understand. Harvard Business School faculty member George C. Chacko and his colleagues begin by explaining the underlying principles surrounding credit risk. Next, they systematically present today's leading methods and instruments for managing it. The authors introduce total return swaps, credit spread options, credit linked notes, and other instruments, demonstrating how each of them can be used to isolate risk and sell it to someone willing to accept it.
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