Credit Derivatives and Securitization: Instruments and Applications

by Janet M. Tavakoli

The Credit Derivatives Bible – Updated with All New Material for 2022

The third edition of Janet Tavakoli’s seminal comprehensive book on credit derivatives takes a fresh approach with a focus on profitable trading strategies in troubled RMBS, synthetic mortgage-backed securitization, structured credit products, related derivatives, and the future direction of the market. Tavakoli explains what works and what does not work. Together with her book, Structured Finance and Collateralized Debt Obligations , she notes the flaws and opportunities in debt obligations leveraged with credit derivatives. (See details after the review)

REVIEW
“Notably, Tavakoli’s research work has been endorsed by, for example, the late Nobel prize winner, Merton Miller, and The Big Short hedge fund manager, Michael Burry.

Of interest to commodity traders is the book’s section on the collapse of the Futures Commission Merchant, MF Global. She discusses ‘[how] MF Global went bankrupt in a triparty repo trade that was, in substance, a total return swap for which it could not meet margin calls."
Intelligent Commodity Investing

How did one use credit derivatives to short the ABX index and why was it such a good idea? How does one use total return swaps to go short or long credit risk? What is triparty repo? What are the pitfalls of derivatives transactions? What are the good ideas today? Which trades are most likely to have the most upside with the least downside? Which are most likely to pose high risk for little reward? This is the book that answers these questions.

This third describes the wide range of products in the second edition plus many

* regulatory capital, CDOs, economic capital, convertible bonds, et al.

* Asset swaps, plain vanilla par credit default swaps, and why they are still trading benchmarks

* LIBOR, SOFR, SONIA, SARON, et al.

* How value-destroying credit derivatives, residential mortgage-backed securities (RMBS), mortgage-backed bonds, and synthetic collateralized debt obligations contributed to the global financial crisis of 2008

* How to recognize the fraud quadrangle, how to avoid it, and how to profit from others’ fraud

* How various Big Short trades work

* JPMorgan's anti-Big Short London Whale trade

* Total Return Swaps (TRS)

* Creating synthetic securities and structured credit products

* Language issues.

* Information Asymmetry

* Repo and reverse-repo

* Triparty repo

* Credit default swaps and options

* Basis risk, materiality, termination payments

* Pricing and applications

* Exotic structures

*Asset swap switches

* Synthetic lending facilities

* Prorata default structures

* Basket default swaps

* Basket default options

* Currency convertibility

* Sovereign Credit Default Swaps

* Credit Linked Notes (CLNs)-reasons for CLNs, black box structures, collateralized loan obligations, hybrid securitizations

* Sovereign risk and emerging markets-tax arbitrage, cross border issues, special event risks, pricing convertibility protection

* Failure of credit derivatives in certain sovereign transactions

* The Big COVID-19 Shorts

* Future opportunities due to the high “Corruption to Production Ratio”

And much more.

Praise for Janet Tavakoli
“Clear and pacy. She knows her stuff, has strong opinions.” On the financial “There is a healthy dose of ‘I told you so’, but Tavakoli is one of the few who did.”— The Financial Times

430 pages, Hardcover

Published February 23, 2022

About the author

Finance Expert & Author

Janet Tavakoli is the founder and president of Tavakoli Structured Finance, a Chicago-based consulting firm established in 2003. Internationally recognized as a finance expert, Business Week called her the "Cassandra of Credit Derivatives" for predicting the financial crisis. This profile features her acclaimed nonfiction finance books and business expertise.

Ms. Tavakoli posts topical finance updates at her business site: Tavakoli Structured Finance.

Fiction Writing: Author Janet Tavakoli has written the well-received financial murder mystery Archangels: Rise of the Jesuits. She also writes science fiction using the pseudonym Michael K. Clancy, creating the acclaimed Zombie Apocalypse series. She posts fiction updates at: Janet Tavakoli, Science Fiction and Mystery Author.

Media Recognition: She is frequently published and quoted in financial journals including The Wall Street Journal, The Financial Times, New York Times, The Economist, Business Week, Forbes and Fortune. Television appearances include CBS's 60 Minutes, CNN, C-Span, CNBC, Fox, CBS Evening News, Bloomberg TV, and BBC.

Education: Ms. Tavakoli earned a Bachelor's degree in Chemical Engineering from the Illinois Institute of Technology and an MBA in Finance from the University of Chicago's Booth School of Business, where she served as adjunct associate professor of finance.

Books by Janet Tavakoli

Finance & Business: Credit Derivatives (John Wiley & Sons, 1998, 2001, 2022)

Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, 2003, 2008): an exposé of grave flaws in the structure, sales practices, and methodology for rating structured financial products.

Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street (John Wiley & Sons, 2009): the causes of the greatest credit bubble in the history of the world, how we could have avoided it and how we can prevent it from happening again.

The New Robber Barons (2012): Janet Tavakoli's ongoing chronicle of the global financial crisis captured in her articles from the September 2008 meltdown through February 2012.

Nonfiction: Decisions: Life and Death on Wall Street: Janet Tavakoli's nonfiction account of Wall Street skullduggery.

Unveiled Threat: A Personal Experience of Fundamentalist Islam and the Roots of Terrorism: Janet Tavakoli's autobiographical account.

Fiction: Archangels: Rise of the Jesuits: Janet Tavakoli's financial fiction thriller debut.