Includes bibliographical references (p. [325]-330) and index.

Front Cover; Understanding Credit Derivatives and Related Instruments; Copyright; Dedication; Author's Disclaimer; Contents; Preface to the Second Edition; Part I: Credit Derivatives: Definition, Market, Uses; Chapter 1: Credit Derivatives: A Brief Overview; 1.1 What Are Credit Derivatives?; 1.2 Potential ``Gains from Trade''; 1.3 Types of Credit Derivatives; 1.3.1 Single-Name Instruments; 1.3.2 Multiname Instruments; 1.3.3 Credit-Linked Notes; 1.3.4 Sovereign vs. Other Reference Entities; 1.4 Valuation Principles; 1.4.1 Fundamental Factors; 1.4.2 Other Potential Risk Factors 1.4.2.1 Legal Risk1.4.2.2 Model Risk; 1.4.3 Static Replication vs. Modeling; 1.4.4 A Note on Supply, Demand, and Market Frictions; 1.5 Counterparty Credit Risk (Again); Chapter 2: The Credit Derivatives Market; 2.1 Evolution and Size of the Market; 2.2 Market Activity and Size by Instrument Type; 2.2.1 Single- vs. Multiname Instruments; 2.2.2 Sovereign vs. Other Reference Entities; 2.2.3 Credit Quality of Reference Entities; 2.2.4 Maturities of Most Commonly Negotiated Contracts; 2.3 Main Market Participants; 2.3.1 Nondealer End Users; 2.3.2 Buyers and Sellers of Credit Protection 2.4 Common Market Practices2.4.1 A First Look at Documentation Issues; 2.4.2 Collateralization and Netting; Chapter 3: Main Uses of Credit Derivatives; 3.1 Credit Risk Management by Banks; 3.2 Managing Bank Regulatory Capital; 3.2.1 A Brief Historic Digression: The 1988 Basel Accord; 3.2.2 Credit Derivatives and Regulatory Capital Management; 3.2.3 Beyond the 1988 Basel Accord; 3.3 Yield Enhancement, Portfolio Diversification; 3.3.1 Leveraging Credit Exposure, Unfunded Instruments; 3.3.2 Synthesizing Long Positions in Corporate Debt; 3.4 Shorting Corporate Bonds 3.5 Other Uses of Credit Derivatives3.5.1 Hedging Vendor-Financed Deals; 3.5.2 Hedging by Convertible Bond Investors; 3.5.3 Selling Protection as an Alternative to Loan Origination; 3.6 Credit Derivatives as Market Indicators; Part II: Main Types of Credit Derivatives; Chapter 4: Floating-Rate Notes; 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; 4.5.1 Interest Rate Sensitivity; 4.5.2 Spread Sensitivity; Chapter 5: Asset Swaps; 5.1 A Borderline Credit Derivative... 5.2 How Does It Work?5.3 Common Uses; 5.4 Valuation Considerations; 5.4.1 Valuing the Two Pieces of an Asset Swap; 5.4.2 Comparison to Par Floaters; Chapter 6: Credit Default Swaps; 6.1 How Does It Work?; 6.2 Common Uses; 6.2.1 Protection Buyers; 6.2.2 Protection Sellers; 6.2.3 Some Additional Examples; 6.2.3.1 Synthesizing a (relatively) riskless asset; 6.2.3.2 Adding highly rated assets to one's portfolio; 6.3 Valuation Considerations; 6.3.1 CDS vs. Cash Spreads in Practice; 6.3.2 A Closer Look at the CDS-Cash Basis; 6.3.3 When Cash Spreads Are Unavailable...

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, it 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 up-front 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.