This introductory chapter outlines the succession of topics that are covered in the book.

From the author - This chapter sets up the basic Merton model and looks at price and yield implications for corporate bonds in this framework. We then generalize asset dynamics (including those of default-free bonds) while retaining the zero-coupon bond structure. Next, we look at the introduction of default barriers ... click here for more details.

From the author - In this chapter we present the most important vehicles for transferring credit risk, namely variations of the default swaps and a class of asset-backed securities broadly referred to as Collateralized Debt Obligations (CDOs). In a 2002 British Bankers` Association survey, so-called single-name default swaps accounted for ... click here for more details.

From the author - In this chapter we focus on understanding the relationship between swap pricing and credit risk. Credit risk enters in two ways. First, since the contract is typically an over-the-counter instrument (i.e. the counterparty is not an organized exchange), there is counterparty credit risk in the contract. ... click here for more details.

From the author - It is easy to build models which capture the trade-off between bankruptcy and tax shield advantages qualitatively. In this section we focus on a class of models which allows us to make more clear-cut quantitative predictions on the chosen levelof leverage and on the effects on ... click here for more details.

From the author - In the option-based models studied so far, the default event is defined in terms of the process modeling the assets of an issuer. Default is triggered when assets, or some function thereof, hit (or fall below) some boundary. We now move to a different class of ... click here for more details.

From the author - What affects the pricing of the tranches and the basket structures is therefore the varying correlation assumptions imposed on the models. Modeling various correlation structures that work with given marginal characteristics is a central focus of this chapter. A second worry in default swap valuation is ... click here for more details.

From the author - Our focus will be on models that allow us to incorporate the ratings of issuers directly into the pricing of securities. Apart from rating triggers, ratings are also used as a (crude) way of aggregating corporate bond prices. Even if ratings are not sufficient to price ... click here for more details.

From the author - It is not always easy to build full structural models which include all the variables that empirically influence estimated default probabilities. The intensity models that we will turn to later try to include more variables in the default pricing, typically (but not necessarily) at the cost ... click here for more details.