by Moorad Choudhry
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Product Description
The growth of the credit derviatives market has produced a liquid market in credit default swaps across the credit curve, and this liquidity has led many investors to access both the credit derivative and cash bond markets to meet their investment requirements.
This book investigates the close relationship between the synthetic and cash markets in credit, which manifests itself in the credit default swap basis. Choudhry covers the factors that drive the basis, implications for market participants, the CDS index basis, and trading the basis.
Credit market investors and traders as well as anyone with an interest in the global debt markets will find this insightful and rewarding.
THIS BOOK QUALIFIES FOR 7 PD CREDITS UNDER THE GUIDELINES OF THE CFA INSTITUTE PROFESSIONAL DEVELOPMENT PROGRAM.
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Average Customer Review:
0 of 0 people found the following review helpful:
 A great read for anyone interested in credit default swaps, 2008-01-22
In all honesty, I bought this book without fully realizing what I was purchasing. I had intended to buy a very basic intro to credit default swaps. With that being said, I'm glad I made the decision to purchase the book. There was more than enough material covering how a CDS works to get anyone familiar with finance up to speed.
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.
9 of 12 people found the following review helpful:
 This book could be boiled down to an article., 2007-03-27
The book is 195 pages total. The first 60 pages explain what CDS, z-spread, and asset swap spread are. While this is useful information, chances are, if you are buying a book about CDS basis, you will already know this stuff. And if you dont, wikipedia or any other online source can concisely explain it.
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.
2 of 2 people found the following review helpful:
Very Useful For Practitioners, 2007-01-27
Choudhry lays out the relationship between cash and synthetic fixed income instruments: 1) for cash bonds, the different ways to measure the cash flows, swapping fixed to floating, using ASW, I spread, Z spread, etc., and the pro's and con's of each measurement. 2) For CDS, there is a brief primer on the CDS product structure, and discussion of CDS pricing methodology (both mathematically and in layman's terms). He then lays out techniques for hedging and basis trading and presents examples. There is discussion of market supply/demand influences.
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.
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