JPM Credit Derivatives Handbook


Part I: Credit default swap fundamentals P.5
Part I introduces the CDS market, its participants, and the mechanics of the credit default swap. This section provides intuition about the CDS valuation theory and reviews how CDS is valued in practice. Nuances of the standard ISDA documentation are discussed, as are developments in documentation to facilitate settlement following credit events.
Part II: Valuation and trading strategies P.43
Part II provides a comparison of bonds and credit default swaps and discusses why CDS to bond basis exists. The theory behind CDS curve
trading is analyzed, and equal-notional, duration-weighted, and carryneutral trading strategies are reviewed. Credit versus equity trading
strategies, including stock and CDS, and equity derivatives and CDS, are analyzed.
Part III: Index products P.111
The CDX and iTraxx products are introduced, valued and analyzed. Options on these products are explained, as well as trading strategies.
Tranche products, including CDOs, CDX and iTraxx tranches, Tranchlets, options on Tranches, and Zero Coupon equity are reviewed.
Part IV: Other CDS products P.149
Part IV covers loan CDS, preferred CDS, Recovery Locks, Digital default swaps, credit-linked notes, constant maturity CDS, and first to default baskets.