Summary

This book addresses these aspects of modeling and analysis of credit derivatives that have not been adequately studied and/or adequately understood in the past. The book presents both survey chapters regarding various aspects of the credit derivative market as well as chapters featuring cutting edge research regarding those aspects. Once the dust settles after the current credit crisis, the credit markets will be facing challenges that this research addresses, contributing to the improved health of the post-crisis credit world. Readers will get a coherent presentation of recent advance in the theory and practice of credit derivatives with a focus on specific topics that are relevant to the current credit crisis and the future of credit markets. The research is presented at a high mathematical and computational level. Potential contributors will be truly international in flavor and include Peter Carr; Frank Fabozzi; professors from Columbia University, University of Chicago, Stanford; and experts from industry such as JP Morgan, Fitch Ratings, ABN AMRO, and Soc Gen. A preliminary list of potential contributors (described as "impressive" by Bjorn Flesaker of Peter Carr's group) that the authors plan to contact is on the server.

Author Biography

Tomasz R. Bielecki is a Professor of Applied Mathematics at the Illinois Institute of Technology. He is the author of numerous research papers in the areas of stochastic analysis, stochastic control, manufacturing systems, operations research, and mathematical finance. Bielecki is a coauthor of the monographs Credit Risk: Modeling, Valuation and Hedging and Credit Risk Modeling. He has been a recipient of various research grants and awards and consults for various financial companies.

Damiano Brigo was recently appointed as Gilbart Professor of Financial Mathematics at King's College, London, heading the research of the mathematicalfinance group. He has published more than fifty worksin top journals on mathematical finance, systemstheory, probability, and statistics; a book for Springer-Verlag that has become a field reference in stochasticinterest rate modeling; and a book for Wiley on creditmodels and the crisis. Brigo obtained a PhD in stochastic filtering with differential geometry in 1996 from the Free University of Amsterdam.

Frédéric Patras is Director of Research at the Centre National de la Recherche Scientifique (Université de Nice, France) and head of quantitative analysis at Zeliade Systems, a software and service provider for financial institutions. He studied at the école Normale Supérieure (Paris) and obtained a PhD in mathematics at the Université Paris 7–Denis Diderot. He has authored more than thirty research papers in combinatorics, mathematical physics, probability, statistics, and mathematical finance.

Foreword (Greg M.Gupton).

Introduction (Tomasz R. Bielecki, DamianoBrigo, and Frederic Patras).

PART I: EXPERT VIEWS.

CHAPTER 1: Origins of the Crisis and Suggestions for Further Research (Jean-Pierre Lardy).

CHAPTER 2: Quantitative Finance: Friend or Foe? (Benjamin Herzog and Julien Turc).

PART II: CREDIT DERIVATIVES: METHODS.

CHAPTER 3: An Introduction to Multiname Modeling in Credit Risk (Aurelien Alfonsi).

CHAPTER 4: A Simple Dynamic Model for Pricing and Hedging Heterogeneous CDOs (Andrei V. Lopatin).

CHAPTER 5: Modeling Heterogeneity of Credit Portfolios: A Top-Down Approach (Igor Halperin).

CHAPTER 6: Dynamic Hedging of Synthetic CDO Tranches: Bridging the Gap between Theory and Practice (Areski Cousin and Jean-Paul Laurent).

CHAPTER 7: Filtering and Incomplete Information in Credit Risk (Rudiger Frey and Thorsten Schmidt).

CHAPTER 8: Options on Credit Default Swaps and Credit Default Indexes (Marek Rutkowski).

PART III: CREDIT DERIVATIVES: PRODUCTS.

CHAPTER 9: Valuation of Structured Finance Products with Implied FactorModels (Jovan Nedeljkovic, Dan Rosen, and David Saunders).

CHAPTER 10: Toward Market-Implied Valuations of Cash-Flow CLO Structures (Philippos Papadopoulos).

CHAPTER 11: Analysis of Mortgage-Backed Securities: Before and After the Credit Crisis (Harvey J. Stein, Alexander L. Belikoff, Kirill Levin, and Xusheng Tian).

PART IV: COUNTERPARTY RISK PRICING AND CREDIT VALUATION ADJUSTMENT.

CHAPTER 12: CVA Computation for Counterparty Risk Assessment in Credit Portfolios (Samson Assefa, Tomasz R. Bielecki, Stephane Crepey, and Monique Jeanblanc).

CHAPTER 13: Structural Counterparty Risk Valuation for Credit Default Swaps (Christophette Blanchet-Scalliet and Frederic Patras).

CHAPTER 14: Credit Calibration with Structural Models and Equity Return Swap Valuation under Counterparty Risk (Damiano Brigo, Massimo Morini, and Marco Tarenghi).

CHAPTER 15: Counterparty Valuation Adjustments (Harvey J. Stein and Kin Pong Lee).

CHAPTER 16: Counterparty Risk Management and Valuation (Michael Pykhtin).

PART V: EQUITY TO CREDIT.

CHAPTER 17: Pricing and Hedging with Equity-Credit Models (Benjamin Herzog and Julien Turc).

CHAPTER 18: Unified Credit-Equity Modeling (Vadim Linetsky and Rafael Mendoza-Arriaga).

PART VI: MISCELLANEA: LIQUIDITY, RATINGS, RISK CONTRIBUTIONS, AND SIMULATION.

CHAPTER 19: Liquidity Modeling for Credit Default Swaps: An Overview (Damiano Brigo, Mirela Predescu, and Agostino Capponi).

CHAPTER 20: Stressing Rating Criteria Allowing for Default Clustering: The CPDO Case (RobertoTorresetti and Andrea Pallavicini).

CHAPTER 21: Interacting Path Systems for Credit Risk (Pierre Del Moral and Frederic Patras).

CHAPTER 22: Credit Risk Contributions (Dan Rosen and David Saunders).

Conclusion (Tomasz R. Bielecki, Damiano Brigo, and Frederic Patras).

Further Reading.

About the Contributors.

Index.

Supplemental Materials

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