Rajan A, McDermott G. , Roy R. - The structured credit
handbook,Wiley finance series-2007, -499p.
Introduction: A Roadmap of the New World of Structured Credit.
How Structured Credit Completes Markets.
Enabling Technology.
Improved Liquidity, Transparency, and Customizability.
Growth of Structured Credit Markets.
Asset Classes.
Products.
Participants.
Core Uses of Structured Credit.
Nonrecourse Leverage.
Diversification.
Customization of Risk Profiles.
Separating Legal from Beneficial Ownership.
Separating Funding from Risk Transfer.
Isolating and Hedging Risk.
Representative Examples of Structured Credit Solutions.
Who Should Read This Book? .
How This Book Is Organized.
Index and Single-Name Products.
A Primer on Credit Default Swaps.
Arvind Rajan.
The Market for Credit Default Swaps.
Transaction Terminology and Mechanics.
Prerequisites for Credit Derivatives Transactions.
What Happens in Case of a Credit Event? .
Unwinding Default Swap Transactions.
The DV of a Credit Default Swap.
The Default-Cash Basis.
Some Uses of Default Swaps.
Buying a Note versus Selling Default Protection.
Freeing Up or Using Bank Credit Lines.
Filling a Maturity Gap.
Expressing Curve or Forward-Rate Views.
Barbell-Bullet Trade.
Taking Advantage of Tight Repo Levels.
without Financing.
Case Study: Relative Value—Cashing In on the Curve.
Steepness in Telecoms.
How to Blend CDs and Cash in Long-Maturity-Curve.
Trades.
Implementing Credit Curve Flatteners—Two Basic.
Approaches.
Appendix: Equivalence of a Bond Spread and Default Swap.
Premium.
Specialness of the Underlying.
Effect of Accrued Default Swap Premium.
Accrued Interest on the Underlying Risky Security.
Accrued Interest on the Underlying Risk-Free.
Security.
Credit Default Swaptions.
Arvind Rajan and Terry Benzschawel.
Payer Options.
Example—When to Buy a Payer.
Example—When to Sell a Payer.
Receiver Options.
Example—When to Buy a Receiver.
Effect of DV on Credit Swaption Payoffs.
Example—When to Sell a Receiver.
Credit Swaption Payoffs in Default.
Credit Swaption Implied Volatility.
Conclusion.
iCase Study: Are Tight Spreads Giving You Butterflies? .
Introduction.
Float Like a Butterfly, Sting Like a Bee.
Butterfly versus Payer.
Variations.
Details of Butterfly Construction.
Conclusion.
Constant Maturity Credit Default Swaps.
Olivier Renault and Ratul Roy.
Basics of CMCDSs.
Participation Rate.
Behavior of CMCDSs.
Impact of Spread Level.
Impact of Spread Volatility.
Capped CMCDS.
Hedging CMCDSs.
Trading Strategies with CMCDSs.
Selling CMCDS Protection.
Buying CMCDS Protection.
Combination Trades and Index CMCDSs.
Conclusion.
Case Study: Taking Curve Views with CMCDSs.
Features of CMCDSs.
Trade Ideas.
Appendix: Computing the Participation Rate.
Credit Derivatives Indexes.
Jure Skarabot and Gaurav Bansal.
Introduction.
Family of Credit Derivatives Indexes.
Structure of the CDX/iTraxx Index Family.
Administration of Indexes.
Basket of Credit Default Swaps.
Trading Example—The Index.
Up-Front and Running Payments.
Trading Example—Premium Payments.
What Happens in Case of a Credit Event? .
Trading Example—Credit Event.
Settlement Process after Credit Event.
Physical Settlement (Indexes and Tranche Products).
Cash Settlement (Tranche Product Only).
Recent Defaults in CDX Indexes.
Index versus Intrinsics.
Investment Strategies with Credit Derivatives Indexes.
Investors.
Index-Related Structured Credit Products.
Issues and Conces.
Conclusion.
Case Study: DJ CDX HY and DJ CDX EM—Conversion of.
Price Level into a Spread Level.
Case Study: Using iTraxx to Replicate Bond Portfolios.
Motivation.
Typical Portfolio Risks.
Replicating Interest Rate Risks.
Using iTraxx to Replicate Broad Credit Market Risk.
Adjusting for Single-Name Risk through Default Swaps.
Performance.
Conclusion.
Appendix: Description of the Roll Process.
Risky PV of a CDS Contract.
Calculation of Intrinsic Spread of the Index.
Risky PV of an Index.
Mark-to-Market Estimation of an Index Position.
The Added Dimensions of Credit—A Guide to Relative Value Trading.
Matt King and Michael Sandigursky.
Overview of Curve Trades.
Leaing Curves.
Drivers of Curve Steepness.
Putting on a Curve Trade.
Cross-Currency Trades.
Cross-Currency Opportunities in Bonds.
Cross-Currency Trades in CDSs.
Basis Trades.
Back to Basis.
Drivers of Basis.
Why CDSs and Bonds Are Two Sides of the Same Coin.
Trading the Basis.
A New Spread Measure: C-Spread.
Debt-Equity Trades.
Meet the Models.
The Debt-Equity Cycle.
A Practical Hurdle or Two.
Debt-Equity Trading in Practice—Arbitrage or Mirage? .
Deciding What to Trade.
A Recovery Trade.
iTraxx Credit Indexes.
Truly Global.
You’ve Got to Roll with It.
iTraxx Intrinsics.
What Happens When a Name Defaults? .
Equiweighted or Not.
Second-Generation Products: iTraxx Tranches.
Credit Options.
It’s a Knockout.
Effect of Convexity on Credit Option Payoffs.
Delta-Exchange.
Why Sell an Option (Riskier Strategy) Rather.
Than Buy One? .
Option Strategies.
Portfolio Credit Derivatives.
Single-Tranche CDOs.
Jure Skarabot, Ratul Roy, and Ji-Hoon Ryu.
Overview of Single-Tranche CDOs.
Advantages of Single-Tranche CDOs.
Key Features of Single-Tranche CDO Transaction.
Description of the Product and Basic Structure.
Main Decision Steps for Investors.
Key Issues in Modeling and Valuation.
Single-Tranche CDO Risk Measures and Hedging.
Substitution of Credits.
Single-Tranche CDO Market.
Investment Strategies.
Collateralized Debt Obligations.
Collateralized Loan Obligations.
Glen McDermott, William E. Deitrick, Alexei Kroujiline,
and Robert Mandery.
Leveraged Loan Market Overview.
Strong Primary Market Growth.
Broadening Investor Base.
Increasing Secondary Market Liquidity.
Continuing Challenges to Loan Market Liquidity.
Key Loan Characteristics.
Loan Structures.
Revolving Credit Facilities.
Amortizing Term Loans.
Institutional Term Loans.
Pro Rata Loans.
Overview.
Key Characteristics.
Investment Opportunities.
Middle-Market Loans.
Overview.
Key Characteristics.
Investment Opportunities.
European Leveraged Loans.
Overview.
European Mezzanine Bank Loans.
Key Characteristics.
Investment Opportunities.
Collateralized Loan Obligations.
Efficient Access to Loan Market Investment.
Opportunities—Introducing CLOs.
Basic CLO Structure.
CLO Asset Manager.
CLO Market Today.
Key Drivers of CLO Outperformance.
Conclusion.
Middle-Market CLO Handbook.
Middle-Market Size and Definition.
Growing Investor Demand.
Dominance of Institutional Term-Loan Debt.
Second-Lien Loans Emerge.
Investment Considerations for Middle-Market.
Investors.
Legal Considerations.
Middle-Market CLOs.
CLO Investment Considerations.
Conclusion.
Appendix A: Middle-Market Loan Characteristics.
Floating-Rate Coupon.
Maturity.
Callability.
Covenants.
Structure of a Middle-Market Loan.
Appendix B: The Basic CLO Structure.
Case Study: CDO Combination Securities—Tailoring.
Risk/Retu Profiles.
Introduction.
Equally Rated CDO Combination Securities Are Not.
Equal.
Value in Baa-Rated CLO Combination Securities.
Conclusion.
ABS CDOs.
Ratul Roy and Glen McDermott.
Overview of the Structured Finance Market.
Basic Structure.
Roles of Multiple Parties in a Securitization.
ABS Market Fundamentals.
Major Characteristics of Structured Finance Securities.
Relative Value.
Structural Protection.
Collateral Stability.
Challenges.
CDOs of Structured Finance Securities.
Investor Motivation.
A Customized Investment.
Relative Value.
Major Considerations in CDO Investing.
Leveraging Stability—Performance of SF CDOs.
Credit-Improved Sales—Treatment of Premium.
Conclusion.
Case Study: Diversifying Credit Risk Using a CDO Equity.
Fund.
Introduction.
Modeling Assumptions and Analytical Techniques.
Results.
Conclusion.
Commercial Real Estate CDOs.
Darrell Wheeler and Ratul Roy.
CRE CDOs by the Numbers.
Slow Start, but Growth Now Strong.
Relative Value: Spread Pickup Often Gives.
CRE CDOs an Edge.
CRE CDO Performance Has Been Strong.
Collateral Mix: Diverse and Evolving.
Building Blocks of a CRE CDO.
B-Notes and Rake Bonds.
Second Lien Loans.
Mezzanine Loans.
Preferred Equity.
Whole Loans.
CMBS First Loss Positions or B-Pieces.
CRE CDO Managers and Sponsors.
Who’s Who.
What to Look for in a CRE CDO Manager.
CRE CDO Investors: A Diverse Group.
Key Events in the CRE CDO Market.
A Market Is Bo.
The Rise of CRE CDOs as a Source of Financing.
The Push for Flexibility.
The Current State of the CRE CDO Market.
Investor Analysis of CRE CDOs.
CRE CDO Analysis for Traditional.
CDO Investors.
CRE CDO Analysis for Traditional.
Real Estate Investors.
Additional Suggested Collateral Analysis.
Analysis of CMBS Certificates.
Analysis of Uncertificated Securities.
Appendix: List of CRE CDOs.
Glossary.
Term Sheet.
Notes.
Index.
Introduction: A Roadmap of the New World of Structured Credit.
How Structured Credit Completes Markets.
Enabling Technology.
Improved Liquidity, Transparency, and Customizability.
Growth of Structured Credit Markets.
Asset Classes.
Products.
Participants.
Core Uses of Structured Credit.
Nonrecourse Leverage.
Diversification.
Customization of Risk Profiles.
Separating Legal from Beneficial Ownership.
Separating Funding from Risk Transfer.
Isolating and Hedging Risk.
Representative Examples of Structured Credit Solutions.
Who Should Read This Book? .
How This Book Is Organized.
Index and Single-Name Products.
A Primer on Credit Default Swaps.
Arvind Rajan.
The Market for Credit Default Swaps.
Transaction Terminology and Mechanics.
Prerequisites for Credit Derivatives Transactions.
What Happens in Case of a Credit Event? .
Unwinding Default Swap Transactions.
The DV of a Credit Default Swap.
The Default-Cash Basis.
Some Uses of Default Swaps.
Buying a Note versus Selling Default Protection.
Freeing Up or Using Bank Credit Lines.
Filling a Maturity Gap.
Expressing Curve or Forward-Rate Views.
Barbell-Bullet Trade.
Taking Advantage of Tight Repo Levels.
without Financing.
Case Study: Relative Value—Cashing In on the Curve.
Steepness in Telecoms.
How to Blend CDs and Cash in Long-Maturity-Curve.
Trades.
Implementing Credit Curve Flatteners—Two Basic.
Approaches.
Appendix: Equivalence of a Bond Spread and Default Swap.
Premium.
Specialness of the Underlying.
Effect of Accrued Default Swap Premium.
Accrued Interest on the Underlying Risky Security.
Accrued Interest on the Underlying Risk-Free.
Security.
Credit Default Swaptions.
Arvind Rajan and Terry Benzschawel.
Payer Options.
Example—When to Buy a Payer.
Example—When to Sell a Payer.
Receiver Options.
Example—When to Buy a Receiver.
Effect of DV on Credit Swaption Payoffs.
Example—When to Sell a Receiver.
Credit Swaption Payoffs in Default.
Credit Swaption Implied Volatility.
Conclusion.
iCase Study: Are Tight Spreads Giving You Butterflies? .
Introduction.
Float Like a Butterfly, Sting Like a Bee.
Butterfly versus Payer.
Variations.
Details of Butterfly Construction.
Conclusion.
Constant Maturity Credit Default Swaps.
Olivier Renault and Ratul Roy.
Basics of CMCDSs.
Participation Rate.
Behavior of CMCDSs.
Impact of Spread Level.
Impact of Spread Volatility.
Capped CMCDS.
Hedging CMCDSs.
Trading Strategies with CMCDSs.
Selling CMCDS Protection.
Buying CMCDS Protection.
Combination Trades and Index CMCDSs.
Conclusion.
Case Study: Taking Curve Views with CMCDSs.
Features of CMCDSs.
Trade Ideas.
Appendix: Computing the Participation Rate.
Credit Derivatives Indexes.
Jure Skarabot and Gaurav Bansal.
Introduction.
Family of Credit Derivatives Indexes.
Structure of the CDX/iTraxx Index Family.
Administration of Indexes.
Basket of Credit Default Swaps.
Trading Example—The Index.
Up-Front and Running Payments.
Trading Example—Premium Payments.
What Happens in Case of a Credit Event? .
Trading Example—Credit Event.
Settlement Process after Credit Event.
Physical Settlement (Indexes and Tranche Products).
Cash Settlement (Tranche Product Only).
Recent Defaults in CDX Indexes.
Index versus Intrinsics.
Investment Strategies with Credit Derivatives Indexes.
Investors.
Index-Related Structured Credit Products.
Issues and Conces.
Conclusion.
Case Study: DJ CDX HY and DJ CDX EM—Conversion of.
Price Level into a Spread Level.
Case Study: Using iTraxx to Replicate Bond Portfolios.
Motivation.
Typical Portfolio Risks.
Replicating Interest Rate Risks.
Using iTraxx to Replicate Broad Credit Market Risk.
Adjusting for Single-Name Risk through Default Swaps.
Performance.
Conclusion.
Appendix: Description of the Roll Process.
Risky PV of a CDS Contract.
Calculation of Intrinsic Spread of the Index.
Risky PV of an Index.
Mark-to-Market Estimation of an Index Position.
The Added Dimensions of Credit—A Guide to Relative Value Trading.
Matt King and Michael Sandigursky.
Overview of Curve Trades.
Leaing Curves.
Drivers of Curve Steepness.
Putting on a Curve Trade.
Cross-Currency Trades.
Cross-Currency Opportunities in Bonds.
Cross-Currency Trades in CDSs.
Basis Trades.
Back to Basis.
Drivers of Basis.
Why CDSs and Bonds Are Two Sides of the Same Coin.
Trading the Basis.
A New Spread Measure: C-Spread.
Debt-Equity Trades.
Meet the Models.
The Debt-Equity Cycle.
A Practical Hurdle or Two.
Debt-Equity Trading in Practice—Arbitrage or Mirage? .
Deciding What to Trade.
A Recovery Trade.
iTraxx Credit Indexes.
Truly Global.
You’ve Got to Roll with It.
iTraxx Intrinsics.
What Happens When a Name Defaults? .
Equiweighted or Not.
Second-Generation Products: iTraxx Tranches.
Credit Options.
It’s a Knockout.
Effect of Convexity on Credit Option Payoffs.
Delta-Exchange.
Why Sell an Option (Riskier Strategy) Rather.
Than Buy One? .
Option Strategies.
Portfolio Credit Derivatives.
Single-Tranche CDOs.
Jure Skarabot, Ratul Roy, and Ji-Hoon Ryu.
Overview of Single-Tranche CDOs.
Advantages of Single-Tranche CDOs.
Key Features of Single-Tranche CDO Transaction.
Description of the Product and Basic Structure.
Main Decision Steps for Investors.
Key Issues in Modeling and Valuation.
Single-Tranche CDO Risk Measures and Hedging.
Substitution of Credits.
Single-Tranche CDO Market.
Investment Strategies.
Collateralized Debt Obligations.
Collateralized Loan Obligations.
Glen McDermott, William E. Deitrick, Alexei Kroujiline,
and Robert Mandery.
Leveraged Loan Market Overview.
Strong Primary Market Growth.
Broadening Investor Base.
Increasing Secondary Market Liquidity.
Continuing Challenges to Loan Market Liquidity.
Key Loan Characteristics.
Loan Structures.
Revolving Credit Facilities.
Amortizing Term Loans.
Institutional Term Loans.
Pro Rata Loans.
Overview.
Key Characteristics.
Investment Opportunities.
Middle-Market Loans.
Overview.
Key Characteristics.
Investment Opportunities.
European Leveraged Loans.
Overview.
European Mezzanine Bank Loans.
Key Characteristics.
Investment Opportunities.
Collateralized Loan Obligations.
Efficient Access to Loan Market Investment.
Opportunities—Introducing CLOs.
Basic CLO Structure.
CLO Asset Manager.
CLO Market Today.
Key Drivers of CLO Outperformance.
Conclusion.
Middle-Market CLO Handbook.
Middle-Market Size and Definition.
Growing Investor Demand.
Dominance of Institutional Term-Loan Debt.
Second-Lien Loans Emerge.
Investment Considerations for Middle-Market.
Investors.
Legal Considerations.
Middle-Market CLOs.
CLO Investment Considerations.
Conclusion.
Appendix A: Middle-Market Loan Characteristics.
Floating-Rate Coupon.
Maturity.
Callability.
Covenants.
Structure of a Middle-Market Loan.
Appendix B: The Basic CLO Structure.
Case Study: CDO Combination Securities—Tailoring.
Risk/Retu Profiles.
Introduction.
Equally Rated CDO Combination Securities Are Not.
Equal.
Value in Baa-Rated CLO Combination Securities.
Conclusion.
ABS CDOs.
Ratul Roy and Glen McDermott.
Overview of the Structured Finance Market.
Basic Structure.
Roles of Multiple Parties in a Securitization.
ABS Market Fundamentals.
Major Characteristics of Structured Finance Securities.
Relative Value.
Structural Protection.
Collateral Stability.
Challenges.
CDOs of Structured Finance Securities.
Investor Motivation.
A Customized Investment.
Relative Value.
Major Considerations in CDO Investing.
Leveraging Stability—Performance of SF CDOs.
Credit-Improved Sales—Treatment of Premium.
Conclusion.
Case Study: Diversifying Credit Risk Using a CDO Equity.
Fund.
Introduction.
Modeling Assumptions and Analytical Techniques.
Results.
Conclusion.
Commercial Real Estate CDOs.
Darrell Wheeler and Ratul Roy.
CRE CDOs by the Numbers.
Slow Start, but Growth Now Strong.
Relative Value: Spread Pickup Often Gives.
CRE CDOs an Edge.
CRE CDO Performance Has Been Strong.
Collateral Mix: Diverse and Evolving.
Building Blocks of a CRE CDO.
B-Notes and Rake Bonds.
Second Lien Loans.
Mezzanine Loans.
Preferred Equity.
Whole Loans.
CMBS First Loss Positions or B-Pieces.
CRE CDO Managers and Sponsors.
Who’s Who.
What to Look for in a CRE CDO Manager.
CRE CDO Investors: A Diverse Group.
Key Events in the CRE CDO Market.
A Market Is Bo.
The Rise of CRE CDOs as a Source of Financing.
The Push for Flexibility.
The Current State of the CRE CDO Market.
Investor Analysis of CRE CDOs.
CRE CDO Analysis for Traditional.
CDO Investors.
CRE CDO Analysis for Traditional.
Real Estate Investors.
Additional Suggested Collateral Analysis.
Analysis of CMBS Certificates.
Analysis of Uncertificated Securities.
Appendix: List of CRE CDOs.
Glossary.
Term Sheet.
Notes.
Index.