The Oxford Handbook of Credit Derivatives

This book offers a comprehensive overview of mathematical modeling in credit derivatives and securitization, addressing statistical techniques, default modeling, counterparty risk, and recent developments in the field.

The Oxford Handbook of Credit Derivatives offers a comprehensive examination of the mathematical modeling essential for understanding credit derivatives and securitization. It delves into a variety of topics, including statistical analysis, default modeling for both single and multiple entities, counterparty risk, and the distinctions between Gaussian and non-Gaussian approaches. The book is particularly relevant given the significant growth of the credit derivatives market since the late 1990s, providing insights into the credit risks associated with these financial instruments.

The authors, Lipton and Rennie, along with a team of contributors, explore both reduced-form and firm-value models for single entity defaults, discussing their theoretical foundations and practical applications in pricing and risk assessment. The notorious Gaussian copula is critically analyzed, highlighting its limitations while also presenting alternative methodologies such as multivariate extensions and continuous-time Markov chains. The book dedicates specific chapters to counterparty risk in credit derivatives, offering a detailed look at this crucial aspect of multiple entity modeling.

Additionally, the text addresses the rise of securitization, including modeling house prices and pricing asset-backed collateralized debt obligations (CDOs). As the recent credit crisis has brought the complexities of credit markets to the forefront, this book serves as a valuable resource for students, researchers, and practitioners in the fields of statistics, economics, and finance. It aims to provide a balanced view of the role of mathematical modeling in contemporary credit markets, making it an essential read for those involved in credit trading and quantitative analysis.