The Credit Default Swap Basis (Bloomberg Financial) (英語) ハードカバー – 2006/10/1
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The growth of the credit derivatives market has meant that credit default swaps (CDSs) have been playing a big part in the credit market situation. An understanding of how these instruments work and what they can, and cannot, offer is vital to knowing how to best use them.
This book investigates the close relationship between the synthetic and cash markets in credit, which manifests in the credit default swap basis. Choudhry covers:
- factors that drive the basis
- implications for market participants
- the CDS index basis
- trading the basis
Credit market investors and traders as well as anyone with an interest in the global debt markets will find The Credit Default Swap Basis insightful and rewarding.
DR. MOORAD CHOUDHRY is head of Treasury at KBC Financial Products in London. He is a visiting professor at the Department of Economics, London Metropolitan University, a visiting research fellow at the ICMA Centre, University of Reading; a senior fellow at the Centre for Mathematical Trading and Finance, Cass Business School; and a fellow of the Securities and Investment Institute. Choudhry is the author of numerous books, including Fixed-Income Securities and Derivatives Handbook.
1. This is not a book about CDS theory and pricing, so if you are looking to get a grip on CDS, this book is not for you. However, quite a number of pages are devoted on CDS, ASW, z-spreads. It is interesting, but this is not the topic of the book and people buying it are certainly all familiar with thoses concepts.
2. The part covering CDS basis is not really deep covered. Moorad Choodry gives some explaination of the factors driving the basis (which was what I was expecting in getting this book) but it could have been done in an article rather than a book.
3. On how to trade the basis, the author gives some trades examples, but he remains very high level on the rationale of the trades and how to identify opportunities. It seems that there is a missing part.
In conclusion, I would still recommend it because of it gives some useful information on the CDS basis and its price is very accessible. Overall, I continue to enjoy what Moorad Choodry writes, but just a little disappointed on this one.
Once Choudhry gets into the basis itself, it's very easy to understand and apply. I almost felt ready to go out and trade the basis myself, but not working on a trade desk, that just wasn't an option!
At the end of the day, one of the most valuable takeaways is that you really have a much better understanding of the difference between the cash and synthetic market. I've personally used what I've learned in this book to help people make sense of what CDS and asset-swap spreads mean.
The emphasis is hands-on usability for the practitioner. He presents examples using the Bloomberg & some spreadsheets. Although several approaches to CDS pricing theory are presented (including some math that I'm not knowledgable enough to evaluate), CDS theory is not explored or debated in great detail. This level of theory is not the primary focus of the book. The book is NOT targeted to heavy duty quants or theoreticians.
There are a couple areas where I would have appreciated a bit more diligence. Choudhry himself points out one example where the values in the printed Bloomberg screen differ slightly from the book's text (couldn't they have updated one or the other before going to print?). In another case, I was unsure about the consistency of treatment in different parts of the book regarding one of the spread measurements. In this case I will probably buy one of his other books where the issue is examined in greater detail.
Overall, I found this book VERY useful and well worth reading.
The last 50 pages includes definitions and appendicies. In between, you get a lot of repetitive information. Every chapter starts out with a 2-3 page summary of what you just read.
Chapter 3 is really the only useful part of the book - it outlines the 10 or so factors that drive basis. I certainly learned a lot here but it was in the course of 10 pages or so.
The final chapter talks about "trading the basis." I was disappointed to read that they are simply telling you how to execute the trade...ie, buy $10MM notional, sell X, hedge with futures. It really doesnt help with idea generation which is what I was hoping to see.