Understanding Credit Derivatives and Related Instruments, Second Edition is an intuitive, rigorous overview that links the practices of valuing and trading credit derivatives with academic theory. Rather than presenting highly technical explorations, the book offers summaries of major subjects and the principal perspectives associated with them.

The book's centerpiece is pricing and valuation issues, especially valuation tools and their uses in credit models. Five new chapters cover practices that have become commonplace as a result of the 2008 financial crisis, including standardized premiums and upfront payments. Analyses of regulatory responses to the crisis for the credit derivatives market (Basel III, Dodd-Frank, etc.) include all the necessary statistical and mathematical background for readers to easily follow the pricing topics.

Every reader familiar with mid-level mathematics who wants to understand the functioning of the derivatives markets (in both practical and academic contexts) can fully satisfy his or her interests with the comprehensive assessments in this book.

Key Features

  • Explores the role that credit derivatives played during the economic crisis, both as hedging instruments and as vehicles that potentially magnified losses for some investors
  • Comprehensive overview of single-name and multi-name credit derivatives in terms of market specifications, pricing techniques, and regulatory treatment
  • Updated edition uses current market statistics (market size, market participants, and uses of credit derivatives), covers the application of CDS technology to other asset classes (CMBX, ABX, etc.), and expands the treatment of individual instruments to cover index products, and more


Practitioners seeking a broad understanding of credit derivatives as well as graduate students and advanced undergraduates worldwide looking for an accessible introduction to credit derivative instruments and the techniques used to value and trade them.

Table of Contents

  • Part I: Credit Derivatives: Definition, Market, Uses
    • Chapter 1: Credit Derivatives: A Brief Overview
      • Abstract
      • 1.1 What Are Credit Derivatives?
      • 1.2 Potential “Gains from Trade”
      • 1.3 Types of Credit Derivatives
      • 1.4 Valuation Principles
      • 1.5 Counterparty Credit Risk (Again)
    • Chapter 2: The Credit Derivatives Market
      • Abstract
      • 2.1 Evolution and Size of the Market
      • 2.2 Market Activity and Size by Instrument Type
      • 2.3 Main Market Participants
      • 2.4 Common Market Practices
    • Chapter 3: Main Uses of Credit Derivatives
      • Abstract
      • 3.1 Credit Risk Management by Banks
      • 3.2 Managing Bank Regulatory Capital
      • 3.3 Yield Enhancement, Portfolio Diversification
      • 3.4 Shorting Corporate Bonds
      • 3.5 Other Uses of Credit Derivatives
      • 3.6 Credit Derivatives as Market Indicators
  • Part II: Main Types of Credit Derivatives
    • Chapter 4: Floating-Rate Notes
      • Abstract
      • 4.1 Not a Credit Derivative…
      • 4.2 How Does It Work?
      • 4.3 Common Uses
      • 4.4 Valuation Considerations
      • 4.5 A Primer on Interest Rate and Spread Sensitivities
    • Chapter 5: Asset Swaps
      • Abstract
      • 5.1 A Borderline Credit Derivative…
      • 5.2 How Does It Work?
      • 5.3 Common Uses
      • 5.4 Valuation Considerations
    • Chapter 6: Credit Default Swaps
      • Abstract
      • 6.1 How Does It Work?
      • 6.2 Common Uses
      • 6.3 Valuation Considerations
      • 6.4 Variations on the Basic Structure
      • 6.5 Upfront Payments and Standardized Spreads
    • Chapter 7: Total Return Swaps
      • Abstract
      • 7.1 How Does It Work?
      • 7.2 Common Uses
      • 7.3 Valuation Considerations
      • 7.4 Variat


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© 2016
Academic Press
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"This is a great place to start if you want to learn how credit derivatives work and why they are used. The book also provides a highly accessible introduction to credit risk modeling. I warmly recommend it."  --David Lando, Copenhagen Business School

"This book is quite an achievement. It provides a wealth of institutional detail, covers the practicals behind an extensive menu of instruments, discusses the regulatory environment and puts together a comprehensive valuation and risk measurement tool kit. This kind of coverage would often require referencing two, if not three, separate publications."  --Jan Ericsson, McGill University