During the course of the last several years, I have had only a passing knowledge of credit derivatives. I have encountered the subject on occasion, but in little more depth than something equivalent to reading, "Credit derivatives are an important component of the modern economy." This book certainly reaches the level expounded in the title, namely being an excellent primer on what they are and the important role they play.
The first chapter explains exactly what credit derivatives are. Using mathematical modeling techniques, an accurate estimate is made of the true credit risk based on the likelihood of partial or total default. This allows the holder of a debt to sell it to someone willing to assume the debt for a price that both agree is reasonable. The seller then gets immediate payment and the buyer has enough margin to make a profit.
After credit derivatives are defined and examples given, precise definitions of credit and credit risk are given. Very sophisticated mathematics is used in the models that describe how the values are derived. Probability theory is also used in the computations, as most of the results are based on the likelihood that the debtor will repay the debt.
This book is not easy to read as you need a significant background in microeconomics and must be able to read and understand formulas. However, it is well worth the effort to read and understand it. Credit derivatives are a very important tool that can be used to generate significant capital quickly, reduce your credit risk or to make significant profits. Like nearly everything else, none of this is possible without the knowledge necessary to do it right. This book will provide that knowledge; I learned a lot while reading it.

A key to evaluating this book is in the sub-title. It is a primer on the new field of evaluating credit. And the good thing is that it remains true to this primer concept throughout the book.

Derivatives are among the newest of the financial instruments. They are far removed from the old traditional stocks and bonds, so even though this is a primer, don't expect to get by without learning a whole lot of new terms and acronyms. Here is discussion on total return swaps, credit spread options, credit linked notes, CDSs and CDOs. (See what I mean.)

The intended audience for the book is the financial practitioner, either on the buying or the selling side. The subjects are covered in as basic a sense as possible without getting so simple or so complex as to be useless. As the book says: 'Simple, yet rigorous explanations: no credit derivatives experience necessary.' I'd add though that you'd best have some credit experience and be knowledgable with the various debt instruments that back derivatives. This is one of those subjects that the young folk coming out of MBA school are likely to have studied. We older folk have to use books like this one just to keep up with them.

If you are new to the burgeoning credit risk market, this is the book. Anyone who has lent money worries about the risk of default. What to do about that worry is of course a different story. Enter credit derivatives.

Using clear language concisely, the authors explain the basics of the credit market, credit derivatives, how they work and how to use them.

They explain how credit risk valued and measured. Key concepts, such as credit spreads and risk transfer are covered in a thoughtful and thorough fashion. In my reading, I have not found a better explanation of the role of this market and its functions.

Moving into second part of the book, the authors tackle credit risk models, how they can be used to describe and predict risk events. They discuss three approaches: structural models, such as the Merton, Black and Cox; empirical models such as Z-score and reduced form models, such as Jarrow-Turnbull.

Finally the authors describe actual credit derivatives, total return swaps, credit spread options and credit linked notes. They devote two chapters to collateral debt options and credit default swaps.

Obviously this is not a book for a seasoned professional. However, if you are new to this market or perhaps simply worried about the risk of being repaid on some money you have lent this book will provide you with the background and understanding required to deploy credit risk strategies effectively and confidently.