Download e-book for iPad: Credit: The complete guide to pricing, hedging and risk by Jon Gregory, Angelo Arvanitis

By Jon Gregory, Angelo Arvanitis

ISBN-10: 0585419337

ISBN-13: 9780585419336

ISBN-10: 1899332731

ISBN-13: 9781899332731

Brief indexed for the Kulp-Wright booklet Award for the main major textual content within the box of possibility administration and assurance

Provides a constant firm-wide platform for pricing, hedging and chance administration of credits throughout a large diversity of product sessions.

Emphasises fastened source of revenue tools instead of loans, the place stochastic destiny exposures are modelled appropriately.

Examines loans, credits derivatives, rate of interest derivatives with dicy conterparties and convertible bonds.

Provides an intensive research of the pricing and hedging of basket credits derivatives and different credits contingent items.

Adapts credits spinoff modelling options so that it will expense and hedge the credits part in mounted source of revenue derivatives.

It offers a pragmatic dialogue of industry frictions that effect credits buying and selling.

Complex theoretical concerns are illustrated with an surprisingly excessive variety of examples, tables and figures which were designed with the practitioner in brain.

It is self-sufficient. Proofs and technicalities are mentioned within the appendices of every bankruptcy.

It has either an appendix of 6 papers and is via a thesaurus.

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Additional info for Credit: The complete guide to pricing, hedging and risk management

Sample text

These values can be readily estimated using historical data. The model is also simple to explain as a basic, but reasonably realistic, description of interest rate behaviour. Criticisms of the above model are that it allows negative interest rates, since the shocks to the yield curve follow a normal distribution, and it is restrictive in the possible yield curve movements that it captures. In regard to the former point, negative interest rates have occasionally been experienced. However, the probability of having negative rates in this model will almost certainly be too high, especially when the interest rates are low, such as for the Japanese yen.

Two general factors are important in determining the credit exposure at some point in the future, and therefore the peak exposure, for a single 31 Chapter 2 9/4/01 2:59 pm Page 32 CREDIT : THE COMPLETE GUIDE TO PRICING , HEDGING AND RISK MANAGEMENT transaction or a portfolio of transactions with the same counterparty. 1. Over time, there will be greater variability/uncertainty in the market variables, resulting in greater exposure as time progresses. 2. For a multitude of transactions, cashflows will be paid over time, causing the outstanding “notional” to decrease, eventually dropping to zero at maturity.

62% and receiving three-month Libor (a) and the corresponding receiver swap (b). 6% 5% Exposure 4% Forward 3% 2% 1% 0% – 1% 0 1 2 3 4 5 Time (a) 6% 5% Exposure 4% Forward 3% 2% 1% 0% – 1% (b) 0 1 2 3 4 5 Time years time. In general, for upward-sloping yield curves, a payer swap has a higher exposure than a receiver swap, while the opposite is true if the yield curve is downwards sloping. For humped yield curves, it is unclear which swap carries more risk. 2. The humped yield curve means that the forward value of the payer swap is initially positive and then it becomes negative (and vice versa for the receiver).

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Credit: The complete guide to pricing, hedging and risk management by Jon Gregory, Angelo Arvanitis

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