Credit Derivatives, Revised Edition A Primer on Credit Risk, Modeling, and Instruments

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

George Chacko (San Jose, CA) is Associate Professor of Finance at Santa Clara University's Leavey School of Business and Managing Partner at Confluentis Investments LLC. He has served as Associate Professor at Harvard Business School, Managing Director at State Street Bank, and Chief Investment Officer at Auda Alternative Investments. Chacko holds a Ph.D. and M.A. in Business Economics from Harvard and a B.S. from MIT. He currently teaches seminars on valuation throughout the US, and is author of several books.

Anders Sjöman (Paris, France) is a senior researcher for Harvard Business School’s Europe Research Center (ERC). He works across management disciplines throughout Europe, conducting research and developing intellectual material for HBS. He is an M.Sc.-graduate of the Stockholm School of Economics in Sweden.

Hideto Motohashi, manager in the Financial System Division at NTT COMWARE Corporation, consults on risk management systems with financial institutions. He completed the Advanced Study Program at MIT as a fellow. He holds a master’s degree in international management from Thunderbird, the Garvin School of International Management, and a bachelor’s degree in chemistry from Keio University, Japan.

Vincent Dessain (Paris, France) is Executive Director of the Harvard Business School’s Europe Research Center (ERC). He previously served as Senior Director of Corporate Relationships at INSEAD, in Fontainebleau, and worked in management consulting with Booz-Allen & Hamilton. He has co-authored two business education books and over 40 case studies and research notes. He holds an MBA from Harvard Business School, a law degree from Leuven University, and a Business Administration degree from Louvain University.

Chacko and Sjöman are co-authors of The Global Economic System (FT Press).

Part I: What Is Credit Risk?

1. Introduction

2. About Credit Risk

Part II: Credit Risk Modeling

3. Modeling Credit Risk: Structural Approach

4. Modeling Credit Risk: Alternative Approaches

Part III: Typical Credit Derivatives

5. Credit Default Swaps

6. Collateralized Debt Obligations

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