Banking

Moorad Choudhry's An Introduction to Credit Derivatives PDF

By Moorad Choudhry

ISBN-10: 0080982956

ISBN-13: 9780080982953

The moment variation of An advent to credits Derivatives offers a vast advent to items and a industry that experience replaced considerably because the monetary trouble of 2008. writer Moorad Choudhry provides a practitioner's standpoint on credits spinoff tools and the hazards they contain in a succinct variety with out sacrificing technical information and medical precision.

Beginning with foundational discussions of credits hazard, credits threat move and credits rankings, the ebook proceeds to ascertain credits default swaps and comparable pricing, asset swaps, credit-linked notes, and extra. plentiful references, appendices and a word list upload significantly to the lasting worth of the e-book for college students and pros in finance.

  • A post-crisis advisor to a strong financial institution threat administration product, its historical past and its use
  • Liberal use of Bloomberg monitors and new labored examples raise hands-on practicality
  • New on-line set of CDS pricing types and different worksheets multiply the book's uses

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Additional info for An Introduction to Credit Derivatives

Example text

An asset swap package involves transactions in which the investor acquires a bond position and then enters into an interest rate swap with the bank that sold him the bond. If it is a fixed-rate bond, the investor will pay fixed and receive floating on the interestrate swap. This transforms the fixed coupon of the bond into a Liborbased floating coupon. 3. In an asset swap the asset swap buyer takes on the credit risk of the bond. If the bond defaults, the asset swap buyer has to continue paying on the swap À which can no longer be funded with the coupon from the bond À or the swap can be closed out at market value.

1999), which states that a TRS is a swap agreement in which the total return of a bank loan or credit-sensitive security is exchanged for some other cash flow, usually tied to Libor or some other loan or credit-sensitive security. The TRS trade itself can be to any maturity term À that is, it need not match the maturity of the underlying security. In a TRS, the total return from the underlying asset is paid over to the counterparty in return for a fixed or floating cash flow. This makes it slightly different to other credit derivatives, as the payments between counterparties to a TRS are connected to changes in the market value of the underlying asset, as well as changes resulting from the occurrence of a credit event.

Assume that for operational reasons the bank can no longer fund these assets using repo. It can fund them using a basket TRS instead, providing a suitable counterparty can be found. Under this contract, the portfolio of assets is swapped out to the TRS counterparty, and cash received from the counterparty. The assets are therefore sold off the balance sheet to the counterparty, an investment bank. The investment bank will need to fund these itself, it may have a line of credit from a parent bank or it may swap the bonds out itself.

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An Introduction to Credit Derivatives by Moorad Choudhry


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