Collateralized debt obligations

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Inhaltsangabe:Abstract:This work aims to give the reader a holistic introduction to Collateralized Debt Obligations (CDOs), an asset category which has recently experienced both popularity and criticism. Collateralized Debt Obligations represent a subset of asset-backed securities. As opposed to classical types of asset-backed-securities like mortgage-backed securities or credit card debt-backed securities, a Collateralized Debt Obligation is a vehicle transforming bank loans or commercial paper into tranches of traded securities.While Collateralized Debt Obligations have been an established part of the U.S. fixed income market, it was only recently that academics showed interest in this asset category. From an asset pricing standpoint, CDOs represent a challenge as credit risk from a heterogeneous pool is passed through to tranches. Hence, asset pricing models have to account for expected defaults and default correlation on the one hand while incorporating the structural support the CDO is offering to the debt tranches on the other. Also, regulatory agencies such as the Basel Committee on Banking Supervision have increasingly covered CDOs and their use in credit risk management, thus further stimulating interest in this asset category.The report is mainly organized in three parts. The first part presents the basic ideas of Collateralized Debt Obligation as well as their structure and principal economics. Part II is the core of the report focusing on the aforementioned asset pricing problem and presenting various models to cope with it. Finally, the third part presents some of the multifaceted applications of Collateral Debt Obligations and concludes with an outlook for the product category. Here, special focus is laid on the European and German market as this is seen as a major area for growth.Inhaltsverzeichnis:Table of Contents:Index of figuresvIndex of tablesviPrefacevii1.INTRODUCTION11.1Definitions11.2Mathematical Classification21.3Purpose and Relevance of CDOs41.4Motivation and Aim of the Study62.STRUCTURE AND DESIGN OF CDOS82.1Underlying Assets92.2Tranches102.3Purpose112.3.1Risk Transfer112.3.2Credit Risk Pricing Arbitrage112.4Credit Structure132.4.1Market Value Structure132.4.2Cash Flow Structure132.5Summary and Typical CDO Structures153.RATIONALE AND ECONOMIC FEATURES183.1Incentives to enter CDO Contracts193.1.1Comparative Advantages in Holding Specific Risks193.1.2Incentives for Equity []

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