Credit Risk Frontiers is a comprehensive guide to understanding credit derivatives, addressing their future role in finance, challenges, and lessons from the financial crisis. It covers liquidity, data issues, and risk management innovations, providing insights for trading and investing in a post-crisis market.
With Smile, Inflation and Credit
The 2nd edition of this successful book introduces several new features. The calibration discussion of the basic LIBOR market model has been significantly enhanced, analyzing the effects of the swaptions interpolation technique and exogenous instantaneous correlation on calibration outputs. It includes a discussion on historical estimation of the instantaneous correlation matrix and rank reduction, alongside a LIBOR-model consistent swaption-volatility interpolation technique. Sections addressing the smile issue in the LIBOR market model have expanded into multiple new chapters. Additional sections cover local-volatility dynamics and stochastic volatility models, with a detailed examination of the uncertain-volatility approach. Real market data calibration examples are now included. The growing interest in hybrid products has prompted new chapters, particularly focusing on pricing inflation-linked derivatives. The final chapters delve into credit, highlighting the increasing importance of Credit Derivatives such as Credit Default Swaps (CDS), CDS Options, and Constant Maturity CDS, which relate closely to interest-rate modeling. Counterparty risk in interest rate payoff valuation is also addressed, reflecting recent developments in the Basel II framework.
The 2nd edition of this successful book features several enhancements. The calibration discussion of the basic LIBOR market model has been significantly expanded, analyzing the effects of the swaptions interpolation technique and exogenous instantaneous correlation on calibration outputs. It includes a historical estimation of the instantaneous correlation matrix and rank reduction, along with a LIBOR-model consistent swaption-volatility interpolation technique. The previous sections on the smile issue in the LIBOR market model have been transformed into a new chapter. Additional sections on local-volatility dynamics and stochastic volatility models have been incorporated, featuring a comprehensive treatment of the uncertain-volatility approach. Examples of calibrations to actual market data are now included. In response to the growing interest in hybrid products, a new chapter focuses on the pricing of inflation-linked derivatives. The final three chapters address credit, emphasizing the importance of Credit Derivatives, particularly Credit Default Swaps (CDS), CDS Options, and Constant Maturity CDS. These discussions build on the earlier introduced short rate-models and market models for the default-free market. Additionally, counterparty risk in interest rate payoff valuation is examined, reflecting recent developments in the Basel II framework.