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Summary: Credit derivatives for everybody
Review: The book covers the all area. Suitable for beginners and pros
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Summary: Crisp and humourous explanation of the topic
Review: The book uses simple examples to explain a relatively new area in derivatives. In this area it scores 5/5, but unfortunately does not score as well in its treatment of the pricing and management of these structures as well as I had hoped.
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Summary: Careful attention to terminology
Review: The title I have just given this review might not seem like high praise. If not, think again. In the world of finance, especially in the subfield of credit derivatives, the fact that different trading communities use different labels for the same trades and features causes no end of trouble and frustration.Tavakoli wisely devotes a good deal of attention, then, to what names are and should be given to what things. She begins her discussion of credit default swaps, for example, by discussing the standard terminology. "If the fee is paid up front, which may be the case for very short dated structures, the agreement is likely to be called a credit default option. If the fee is paid over time, the agreement is more likely to be called a swap." She disagrees with this habit. She would prefer to call a swap only if the parties are actually exchanging the credit default list of two different credits. Otherwise, "cash flows paid over time are nothing more than an amortization of an option premium." She explains why the usage that over-stresses that amortization came about. Its because the desks at many banks where this work is done are occupied by former interest-rate-swap staff, so the ISDA terminology persists.
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Summary: Credit Derivatives and Insurance
Review: The use and misuse of credit derivatives terminology is thoroughly explained in this book. After that, the products applications are introduced. The difference between insurance and credit derivatives is clearly explained. From the insurance perspective, examples of using credit derivatives to change capital structure are very helpful. The basic structures of synthetic collateralized debt obligations are introduced in this book, but more details and the cash flows are explained in Tavakoli's newer book. This book focuses on the credit derivatives market and the peculiarities of this market.
Tavakoli's book is an excellent credit derivatives guide for both newcomers (who are finance professionals) and insurance/finance professionals who need a thorough overview of the various the products. All of the major structures of credit derivatives are explained. The new indexes aren't included in this edition, but index products of other sorts are included, so the structural form is introduced here. The qualitative narratives are very helpful in explaining how the products are traded. These are supplemented with deal diagrams and tables of information. The author's firm command of the subject matter makes this book very readable and easy for finance professionals to understand. Professionals who are not looking for a heavy quant book but want a clear understanding of how these products are used and the guideposts for value will enjoy this book. The documentation shown in this book is especially useful for lawyers and people customizing trades. This is particularly useful if you want to include features that offer greater value to you than "standard" documentation. Tavakoli includes basic documentation for each of the major products.
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Summary: Over-rated, and no more than a term sheet
Review: There is lots of praise in the market for this book but I can't see why. It uses up loads of text getting to the point and describing the basics, and then after that turns into one long term sheet. If I wanted deal documentation I could just photocopy deal details at work.
Not recommended on credit derivatives or structured products.
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Summary: Outdated doorstop
Review: This book is outdated for practitioners, but may be of some use to summer interns or undergraduate students. While there are many glowing reviews of this effort they are dated and, quite frankly, examples of puffery. The author must spend her spare time writing book reviews for Amazon. The book has had its moment, but that moment was several years ago. I would encourage others to look for another text.
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Summary: High Level View of Credit Derivatives
Review: This book provides an up-to-date and comprehensive overview of credit derivatives. Tavakoli provides an excellent resource for credit risk managers who specialize in one area of credit risk management, professionals who are new to the field, or for experienced professionals who need the definitive reference of credit derivatives products.
This book is not about is the mathematical and statistical details in credit risk/portfolio modeling, but Tavakoli does a good job of highlighting various aspects of modeling (such as data availability, limitations of different approaches, etc.). For example, Tavakoli's explanation of first-to-default baskets provides a quantitative explanation of boundary conditions and a qualitative explanation of the products. The clear, qualitative, conceptual explanations are supported by explanations that show a deep understanding of the underlying mathematics. Numerically minded readers will grasp this, but even those who are a bit numbers shy will find the quantitative examples easy to follow. Tavakoli's book enabled me to discuss the assessment and deployment of quantitative models on an even footing with professional risk managers and the rocket scientists developing these models.
I also recommend Phillip Schonbucher's book on credit derivatives for people who need to model credit derivatives. Unfortunately, the resource doesn't exist that can solve the tough problem of estimating correlation between defaults.
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Summary: Credit Derivatives
Review: Very clear explanation of credit derivatives and their diverse applications. Tavakoli explains how credit derivatives can actually be oversold on a given reference obligation creatig potential physical delivery problems in the event of default. She also explains the pros and cons of the various types of delivery, specifying various credit events, other triggers. The explanation of the various terms of the documentation and the reasons for each is very extensive. The section on total return swaps is particularly good.
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