Credit Derivatives and Synthetic Structures: A Guide to Instruments and Applications

There is a newer edition of this book: Credit Derivatives and Securitization 3rd Edition (2022).

The Original Credit Derivatives Bible

A comprehensive first look at the initial explosion of the credit derivatives market as growing investments and risk management mechanisms. This is the paperback edition of credit derivatives expert Janet Tavakoli’s finance classic, Credit Derivatives and Synthetic Structures, Second Edition (Wiley, 2001). Tavakoli’s iconic book is referenced by law firms, Congress, and scholarly publications. Tavakoli explains what works, and more importantly, what does not work. She provides a guide on how to manage and control the various risks using real world examples based on her extensive experience. This book is the only source that explains the various ways these instruments can be mishandled, and together with her book, Structured Finance and Collateralized Debt Obligations, she noted the flaws in debt obligations leveraged with credit derivatives and their egregious misratings.

Credit derivatives revolutionized the financial industry and changed the way banks, institutional investors, and securities traders do business both domestically and globally. Credit derivatives expert Janet Tavakoli explains how these instruments were developed, their relative value, and their tricks and traps.

Credit derivatives create opportunities, but they are riddled with pitfalls. Tavakoli explains what works, and more importantly, what does not work. She provides a guide on how to manage and control the various risks using real world examples based on her extensive experience.

Tavakoli describes a wide range of products and valuation techniques that are particularly important in the current market as well as how to manage risks for the essential instruments:

* Language issues for confirmations and term sheets and how to fix them.

* Information Asymmetry and what to do about it

* Total Rate of Return Swaps (TRORS)-receiver and payer motivation, mismatched maturities, balance sheet management, loan TRORS mechanics

* Credit default swaps and options-basis risk, materiality, price adjustments, termination payments, normalized price method, pricing and applications

* Exotic structures

*Asset swap switches

* Synthetic lending facilities

* Prorata default structures

* Basket default swaps

* Basket default options

* Currency convertibility

* Sovereign Credit Default Swaps

* Credit Linked Notes (CLNs)-reasons for CLNs, black box structures, collateralized loan obligations, hybrid securitizations

* Sovereign risk and emerging markets-tax arbitrage, cross border issues, special event risks, pricing convertibility protection

And much more.

"The Cassandra of Credit Derivatives...She has also been right--and much in demand."
Business Week

"Tavakoli's strong opinions have earned her some high-profile admirers. Warren Buffett invited her to stop by..."
University of Chicago Magazine

"Janet Tavakoli warned that the biggest credit bubble in world history was coming well in advance."
Jim Rogers, author of A Bull in China, Hot Commodities, Adventure Capitalist, and Investment Biker

"An intelligent analyst whose command of the arcane world of securitization mixed with a brutally honest analytical framework makes it a pleasure to hear and read her work."
Asia Times Online

"Tavakoli writes in a clear, sprightly way."
ADAM SMITH (George J. W. Goodman), author of The Money Game


"Tavakoli makes for an attractive pundit--she knows her stuff, has strong opinions, and turns a colorful quote."
Financial Times

"Tavakoli has been railing against emperors wearing no clothes in the credit derivatives markets forever. If only people had listened."
Andrew Tobias, author of The Only Investment Guide You'll Ever Need