Credit Derivatives

The global credit derivatives markets showed an outstandinggrowth to more than USD 20 trillion notional by the end of 2006 andmeanwhile sharply crashed in the 2007-2008 subprime crisis. It isnot least the complexity of credit derivatives that has led to anunderestimation of the embedded risks therein and finally to thecurrent crisis. This book adresses the challenge of pricing creditderivatives in presence of different sorts of default dependencies:Dependence across the underlying obligors of a credit portfolio anddependence between these credits and other related financialfactors. In part I a framework for portfolio credit risk whichincorporates the dependence between interest-rates and theportfolio loss process is presented. It allows in particular toconsistently model the market of single-tranche CDOs and the termstructure of interest-rates. Part II provides a detailed analysisof the connections between the credit spreads the same single-namecredit commands in different currencies including an empiricalstudy using JPY and USD CDS rates on large Japanese corporates.This book is recommended for practitioners and academics with anadvanced quantitative background.