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Credit
Derivatives by Janet Tavakoli
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Credit
Derivatives & Synthetic Structures: A Guide to Instruments
and Applications (2nd
edition), John Wiley & Sons 2001, by Janet Tavakoli,
is the groundbreaking global bestseller in the field
and is the definitive work on credit derivatives applied
to
structured finance. In this classic guide to products and concepts,
Tavakoli makes the case for profitable hedging and investing." More
quotes at bottom of page.
Click
here to order from Amazon
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Credit
Derivatives & Synthetic Structures contains clear
and comprehensive explanations of total
return swaps, credit default swaps, exotic structures, first-to-default
options, credit linked notes, synthetic structures, sovereign
risk, and convertibility options. This book describes the strengths
and weaknesses of models and the real world performance
of various credit derivative products.
Tavakoli
presents
the most comprehensive explanation of total return swaps
(total
rate of return swaps) available. Also explains the rationalization
of payers and receivers in total return swap transactions
and
explains the use of total return swaps by hedge funds. Investors,
structurers, hedge funds, regulators, banks, insurance companies,
investment banks, mutual fund managers, hedge fund managers,
and corporate managers have purchased Credit Derivatives
& Synthetic Structures making
it the global bestseller in the field.
This
book contains
term sheets and actual trading examples for credit derivatives,
total
return
swaps,
and
credit linked
notes
translate theory
into practical examples that give credit derivatives market
participants the confidence to begin trading the products.
Praise for
Credit Derivatives & Synthetic Structures: A Guide to
Instruments and Applications, John Wiley & Sons, 2001,
by Janet Tavakoli
"If you want to know more about credit derivatives -
and these days an increasing number of people do - then you should
read this book."
Merton H. Miller, winner, Nobel Prize in Economics, 1990
Robert R. McCormick Distinguished Service Professor Emeritus,
University of Chicago Graduate School of Business
“Credit Derivatives & Synthetic Structures describes
common and exotic credit derivatives as well as synthetic securitizations.
Strongest
sections are
on total
return swaps and their use by hedge funds.”
International Swaps and Derivatives Association,
Inc.
"Tavakoli brings extraordinary insight and clarity
to this fascinating financial evolution. She combines her extensive
experience and deep understanding of the derivatives markets with
a lucid writing style that makes this an eminently readable volume.
This book should set the standard for credit derivatives texts
for years to come."
Carl V. Schuman
Director, Structured Credit
Calyon Securities (New York)
"Tavakoli does a remarkable job compiling a highly readable
and much needed guide to instruments and applications of credit
derivatives. Using charts, examples, basic investment theory,
and elementary mathematics, Tavakoli explains the real-world practice
and applications of credit derivative products. Credit Derivatives
clarifies often misunderstood concepts and offers a framework
with which to analyze derivatives and how to make them work."
Stephen Wade Former Managing Director, UBS Securities
LLC
Hei Wai Chan, PhD, Former Director, UBS Securities LLC
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Japanese
Edition
- Credit Derivatives: A Guide to Instruments and Applications
Sigma Base, 1999, by Janet Tavakoli, is
available in Japanese from Sigma Base publishing in Japan,
ISBN4-916106-35-0. Users with Japanese character language
packs can also order from Amazon Japan. This
is the Japanese translation of the 1st edition of Credit
Derivatives. BACK
TO TOP
Also
availalbe in orthodox Chinese.
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Selected
Quotes from Credit Derivatives & Synthetic
Structures
Risk Management: A Model for Capital Asset Pricing
" I deliberately made it simple because, for
all of the simplicity of this concept, it is violated
time and again
in the financial markets."
Enjoying All of the Cash Flow Benefits of a Security
Without Actually Owning the Security
" The structure is flexible and does not
require a sale of the asset. In this way the investor
can lock
in a
return, yet take a temporary short-term negative
view on an asset."
The Mechanics of Mismatched Maturities, Asset Swaps,
and Loan Swaps
" The borrower need never know that the
bank is laying off its risk, and the bank can continue
to
have a profitable
relationship with the borrower."
Negotiating Transactions in the Credit Default Swap
Market
" Credit derivatives are sometimes seen
as the panacea, the answer to any finance problem
that
cannot be solved
by conventional market strategies."
Credit Spread Options, Switches, Swaps, and Forwards
" To avoid confusion it is best to immediately
reiterate the terms of the transaction. I know
several seasoned
market professionals who have run into difficulty
as a result of not clarifying terminology."
Purchasing Protection on a Basket of Credits
" The protection buyer may be looking
for a cheap source of credit default protection."
Identifying Currency Risks and Convertibility Protection
" The harder a government, such
as a dictatorship, tries to maintain monetary policy
autonomy,
the more it must
either limit the movement of capital into and outside
of the country, or the more it must compromise
exchange-rate stability."
Credit Derivatives: A Method of Providing Off Balance
Sheet Transactions with Trust Vehicles
" This allows investors to take either a
bullish or bearish view on a basket of emerging
market countries
or on
a selected set of countries."
Credit Default Transactions: Considerations for Hidden
Costs Guarantees, Insurance, Credit Derivatives, and
Regulatory Capital
" The current dogma on regulatory treatment
gives market professionals an uneasy feeling."
How Credit Derivatives Will Change the Way Banks Do
Business
" The potential for negative publicity and
minor shakeups in this market abound. Some market
participants will
get their education the hard way. It is an inevitable
part of the product life cycle."
Definition
of Credit Derivative: Credit
derivative is the generic term for any derivative
contract used to transfer credit risk on
a reference entity or reference obligor between
a credit protection seller that is short
the credit risk, and a credit protection
buyer that is long the credit risk. Credit
derivatives are distinct from financial guarantees
and credit insurance. The credit protection
buyer does not have to own the underlying
security or actually suffer a loss. The credit
protection seller has no recourse to the
reference entity and does not have the right
to sue the reference entity/obligor for recovery.
Definition of Credit Default Swap: A
credit default swap is a bilateral contract
between the protection buyer that is short
the
credit risk and the protection seller that is long the credit risk. Usually
the protection buyer pays a periodic fee to the protection seller in exchange
for the protection seller’s contingent payment if a pre-defined credit
event affects the reference entity or reference
obligor.
Definition of a Total Return Swap (TRS), or Total Rate of Return
Swap, (TRORS): A total return swap is considered a type of credit
derivative, and it is fundamentally
a form of financing. An “investor” uses financing, i.e., leverage,
and obtains the economic benefits of an asset (or assets) without owning the
asset or ballooning its balance sheet. The investor’s counterparty essentially
finances the asset/s for the investor and buys protection against both credit/value
deterioration and loss. The investor is the receiver of the total return on
a reference asset/s including interest capital gains/losses or other economic
benefits during
the pre-defined payment period. The investor's counterparty receives
a specified fixed or floating cash flow usually related to the credit worthiness
of the investor. Typical reference assets include bonds, loans, indexes, hedge
fund obligations, equity and commodities. The reference asset may be virtually
any financial obligation.
Total return swaps are popular with hedge funds due to the leverage they provide.
Banks and investment banks with lower funding costs usually require upfront
collateral from hedge funds that is a fraction of the initial asset value,
often allowing
hedge funds 20:1 leverage.
Definition of Synthetic Securitization: A synthetic
securitization employs credit
derivatives technology to transfer asset risk.
Adapted and simplified from:
Tavakoli,
J. Credit Derivatives & Synthetic Structures, John Wiley & Sons,
2nd Edition 2001.
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Janet Tavakoli, President: jt@tavakolistructuredfinance.com
TEL: (312) 540-0243
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