The art of credit derivatives: demystifying the black swan

As far back as 2002, João Garcia anticipated the market turmoil that began inJuly 2007. In 2006 Serge Goossens joined João and their work in educating others and developing policies and systems ever since has been driven by the anticipation of this crisis. In the first part of the book the authors look at howsome aspects of quantitative modeling has led to the current credit crisis. They begin by showing how the misuse of securitization and risk models for the credit and related asset backed securities markets led to the credit crisis byillustrating the problems inherent in the risk models e.g systemic risk beinggrossly underestimated. They also identify the sources of the anomalies in the current regulations e.g the extreme low risk weight for the super senior tranches of CDO's where the correlation has been underestimated and present an algorithm to estimate these correlations and numerical results to support the claims. They show how a mind-shift is needed within the quant community to move from simple modelers to a more hands on mindset where the modeler understands trading implicitly. They then go on to show the consequences of all this including the higher regulatory costs of structured products potentially reducing market size. The second part of this book provides groundbreaking solutions to the problems outlined in part one: Why regulatory capital should be portfolio dependant and how to use stress tests and scenario analysis to model this. Using standardized credit indices as the most appropriate instrument in any pricediscovery process and as the most appropriate tool for the short term management of credit portfolio's. How to put structured products in a mark to market environment and increasing transparency for accounting and compliance. Table of Contents Introduction Modelling Frameworks Default Models: Firm Value and Intensity Based Models Correlation Models: Copulas Corporates Credit Default Swap (CDS) Credit Spread Options Synthetic Collateralized Debt Obligation (CDO) Standardized Credit Indices: CDX iTraxx Cash Flow CDO Structured Credit Products CPPI CPDO Asset Backed Securities ABS CDS PAUG ABS CDO More Standardized Credit Indices: ABX, TABX, CMBX, MCDX, LCDX, LevX Dynamic Credit Portfolio Management Capital Restructuring & Portfolio Optimisation Appendix Mathematical Background

• ISBN: 978-0-470-74735-3
• Editorial: John Wiley & Sons
• Encuadernacion: Cartoné
• Páginas: 264
• Fecha Publicación: 04/12/2009
• Nº Volúmenes: 1
• Idioma: Inglés