If you are a left
brain (quantitative, technical) kind of person, you are going to find this a
frustrating book. Tavakoli rarely states general principals. Instead, she
talks in examples. At one point, she takes two-and-a-half pages to present two
examples illustrating the point that credit protection offered by a
firm on its own debt is worthless—if the firm defaults on its debt, it is going
to also default on the credit protection. There!!! I explained the concept in
one sentence. What I find frustrating is sifting through Tavakoli's lengthy
examples wondering what simple point she might be trying to make.
In fairness to the
author, I will say that all the examples are very real-world. She has plenty of
street experience, so she is able to communicate through the examples a flair
for what it is like to work in a credit derivatives environment. Regulatory
arbitrage, tax strategies, the risks of dealing with hedge funds, and elaborate
schemes for reducing funding costs all come to life. Not all the examples are
exactly clear as to what they are intended to communicate, but they do give you
that sense of "being there."
Contents
1. Credit Derivatives Markets Overview
2. Total Rate of Return Swaps - Synthetic
Financing
3. Credit Default Swaps of Options
4. Exotic Structures
5. Sovereign Risk and Emerging Markets
6. Credit-Linked Notes
7. Synthetic Collateralized Loan Obligations
8. Selected Documentation, Regulatory, Booking,
and Legal Issues
9. Future of the Global Market
Pricing and credit
risk modeling is not discussed. The book describes the instruments and how they
are used. Illustrative term sheets are provided for a number of instruments. The
focus is on qualitative aspects of the market and the reasons why someone might
enter into this or that transacting.
The book first came out in 1997. I think more
updating would have been appropriate for this second edition. For example, there
is plenty of discussion of bank capital requirements, but it is all Basle I.
With Basle II on the horizon, it would have been appropriate to mention it, but
I found not a word.
In summary, this is not a book that starts with basic principles and
systematically builds a knowledge base. It is largely qualitative and examples driven. It tends
to return to the same topics repeatedly as it passes through examples. You will
come away with much practical familiarity with credit derivatives—something more
theoretical texts don't provide—but you may be uneasy
about the breadth or depth of the knowledge you glean.
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