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The recent credit crisis has highlighted need for better risk management procedures, better understanding of structured products, and has called into question the actions of many financial institutions.  However, very little analysis has been carried out as to the failures in the financial models themselves.   Credit Models and the Crisis is a succinct, technical analysis of the key aspects of credit derivatives model failure, tracing the development (and flaws) of new quantitative methods for credit derivatives and CDOs up to and through the credit crisis.    It follows the development of credit derivatives and CDOs at a technical level, analyzing the impact, strength and weaknesses of methods such as the Gaussian copula (blamed by many for the failure of models, yet are still used), the related implied correlations and the arbitrage-free implied loss models.   The book takes a critical eye to these weaknesses in derivatives models, provides market examples of how and why these methods failed and also suggests that practitioners were fully aware of these model limitations well in advance of the credit crisis.    This will make up an important part of modern derivatives literature.  With banks and regulators failing to fully analyze at a technical level, many of the flaws in modern financial models, it will be indispensible for quantitative practitioners who want to develop stable and functional models  in the future.  

Credit Models and the Crisis: A Journey into CDOs, Copulas, Correlations and Dynamic Models