Credit Derivatives

The global credit derivatives markets showed an outstanding growth to more than USD 20 trillion notional by the end of 2006 and meanwhile sharply crashed in the 2007-2008 subprime crisis. It is not least the complexity of credit derivatives that has led to an underestimation of the embedded risks therein and finally to the current crisis. This book adresses the challenge of pricing credit derivatives in presence of different sorts of default dependencies: Dependence across the underlying obligors of a credit portfolio and dependence between these credits and other related financial factors. In part I a framework for portfolio credit risk which incorporates the dependence between interest-rates and the portfolio loss process is presented. It allows in particular to consistently model the market of single-tranche CDOs and the term structure of interest-rates. Part II provides a detailed analysis of the connections between the credit spreads the same single-name credit commands in different currencies including an empirical study using JPY and USD CDS rates on large Japanese corporates. This book is recommended for practitioners and academics with an advanced quantitative background.

Autorentext

Philippe Ehlers is an equity derivatives market maker at UBS Investment Bank. His research has focused on the field of credit derivatives and includes contributions on the term structure of CDOs and credit hybrid derivatives. Dr. Ehlers holds a diploma and a Ph.D. in mathematics of the Swiss Federal Institute of Technology (ETH) Zurich.