Magazine article Modern Trader

Credit Derivative Strategies: New Thinking on Managing Risk and Return

Magazine article Modern Trader

Credit Derivative Strategies: New Thinking on Managing Risk and Return

Article excerpt

Credit Derivative Strategies: New Thinking on Managing Risk and Return

Edited by Rohan Douglas

Bloomberg Press

$79.95, 224 pages

The promotional material for this book notes that it qualifies for 7.5PD credits under the guidelines of the CFA Institute Professional Development Program, and it is easy to see why. This book covers relative value strategies, distressed debt strategies, trading synthetic Collateralized Debit Obligations (CDO), managing risk, pricing and valuation. There are eleven contributors, including the editor, all of whom are well qualified. On the other hand, it is more likely that this book will help you lose money than make it.

[ILLUSTRATION OMITTED]

The problem starts in the book's introduction. The editor writes, "All potential investors ask: 'How do I choose among the many investments and strategies?'" Unfortunately, that is the wrong question. It is a beginner's question. An experienced trader would ask, instead, "Given what I know of the markets and given who I am, is there anything here that will help me make money. And, if so, what other knowledge and skills do I need to make this work?"

Unfortunately, to use the material in this book, you must know or learn an immense amount of other material. For example, credit spreads are a function of the difference between default distributions of debt instruments or portfolios of debt instruments. A default distribution is each possible default times the probability of that default taking place. …

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