Credit Derivatives Pricing ModelsModels, Pricing and Implementation
The Wiley Finance Series 1. Aufl.
The credit derivatives market is booming and, for the first time, expanding into the banking sector which previously has had very little exposure to quantitative modeling. This phenomenon has forced a large number of professionals to confront this issue for the first time. Credit Derivatives Pricing Models provides an extremely comprehensive overview of the most current areas in credit risk modeling as applied to the pricing of credit derivatives. As one of the first books to uniquely focus on pricing, this title is also an excellent complement to other books on the application of credit derivatives. Based on proven techniques that have been tested time and again, this comprehensive resource provides readers with the knowledge and guidance to effectively use credit derivatives pricing models. Filled with relevant examples that are applied to real-world pricing problems, Credit Derivatives Pricing Models paves a clear path for a better understanding of this complex issue. Dr. Philipp J. Schönbucher is a professor at the Swiss Federal Institute of Technology (ETH), Zurich, and has degrees in mathematics from Oxford University and a PhD in economics from Bonn University. He has taught various training courses organized by ICM and CIFT, and lectured at risk conferences for practitioners on credit derivatives pricing, credit risk modeling, and implementation.
Preface. Acknowledgements. Abbreviations. Notation. 1. Introduction. 2. Credit Derivatives: Overview and Hedge-Based Pricing. 3. Credit Spreads and Bond Price-Based Pricing. 4. Mathematical Background. 5. Advanced Credit Spread Models. 6. Recovery Modelling. 7. Implementation of Intensity-Based Models. 8. Credit Rating Models. 9. Firm Value and Share Price-Based Models. 10. Models for Default Correlation. Bibliography. Index.
PHILIPP J. SCHÖNBUCHER is Assistant Professor for Risk Management in the Mathematics Department at ETH Zurich. He has been an active researcher in the areas of credit risk modelling and credit derivatives pricing for the past seven years. His contributions include models for the term structure of credit spreads and the dynamic copula-approach for portfolio credit risk. Through his activities in training and consulting on credit derivatives he has gained valuable insights into the usability, strengths and weaknesses of the different credit derivatives pricing models in a practical context. Dr. Schönbucher holds a M.Sc. in mathematics from Oxford University, and diploma and a Ph.D in economics from Bonn University.
In this book, Philipp Schönbucher covers all the important modelling approaches from hedge-based pricing to stochastic-intensity models, credit rating models and firm's value based models, concluding with a large chapter on portfolio credit risk models. The author builds the models starting from simple basic models, introducing complexity only where it is needed, and explaining implementation, data collection and calibration on the way. The advantages and disadvantages of the different pricing approaches are clearly confronted, and the effects of hidden assumptions on the output of the models are identified. The book is an indispensable tool for credit derivatives traders, quantitative analysts, software developers, risk managers, regulators, auditors, and anybody interested in how credit derivatives are priced.
Since its inception, the market for credit derivatives has shown impressive growth and is expected to hit a volume of more than $4.8 trillion by 2004. Credit derivatives have begun to transform modern banking; they have become a standard instrument for the management of default risk; they are being used for risk management and hedging as well as for speculation, balance-sheet management and regulatory capital purposes. Despite their great usefulness, even established professionals often feel insecure when it comes to the quantitative analysis of the prices and risks of credit derivatives. Confronted with a bewildering variety of fundamentally different pricing approaches, it can be very challenging to understand their relative advantages and disadvantages and to choose the "correct" one for the problem at hand. In this book, the author carefully explains the different pricing models for credit derivatives in a very application-oriented way. Based on his wide experience in professional training for credit derivatives analysis, the models are developed with a view to their application to real pricing problems rather than just presenting the theory. Philipp Schönbucher is one of the most talented researchers of his generation. He has taken the Credit Derivatives world by storm. In this book he carefully explains the concepts and the mathematics behind all of the most important and popular credit risk models. Professor Schönbucher has filled an important gap on the quantitative finance bookshelf. –Paul Wilmott The reader is presented with a clear, concise and readable treatment of credit pricing models that will appeal to practitioners and academics. It provides a useful roadmap to the many daily challenges that face practitioners. It will become a standard reference. –Stuart M. Turnbull, Senior Vice President, Fixed Income Research, Lehman Brothers, NY "This is the most comprehensive, and also the clearest, book on the details of constructing credit risk models that I have read. Throughout, it is directly useful for general value-at-risk credit modelling as well as its stated focus of credit derivatives. Readability is greatly enhanced by its step-by-step organization across what has grown to be a large topic area and the focus of its single author, as opposed to a collection of disjointed papers. Alternative modelling frameworks are written in a common notation and the reader is given all the details needed for direct implementation. The author, Philipp Schönbucher, is clearly one of the top researchers in this area, even before the writing of this book." –Greg M Gupton, DefaultRisk.com "Philipp addresses a wide range of modelling issues in the fast growing market of credit derivatives. He covers a broad spectrum of topics starting with the simple everyday trading tools while gradually building up to the more complex mathematical models. It successfully bridges the gap between academia and practice in an elegant and easy style, making it a valuable book for a wide audience" –Ebbe Rogge, Product Development Group, Financial Markets, ABN AMRO