By Laurie S. Goodman;Frank J. Fabozzi

ISBN-10: 0471234869

ISBN-13: 9780471234869

A realistic advisor to the positive aspects and funding features of CDOs within the bond quarter, collateralized debt responsibilities, which come with collateralized bond responsibilities and collateralized personal loan responsibilities, are the fastest-growing zone. Collateralized Debt tasks: constructions and research describes many of the items during this area-cash movement CDOs, industry price CDOs, man made CDOs, etc.-and explains the way to review them. With this publication as their advisor, funding managers and institutional traders alike will how one can examine the dangers linked to CDOs, create a portfolio of CDO items, and determine buying and selling possibilities within the secondary industry.

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Extra resources for Collateralized Debt Obligations: Structures and Analysis

Example text

However, rating agencies are well aware of the incentive to “barbell” a portfolio to increase portfolio yield. So they “correct” for that by treating the high-yield universe as a separate portfolio and examine that piece of the portfolio at a probability of default much higher than would be dictated by probability of default on the overall portfolio. More precisely, their adaptation for “barbelled” portfolios involves running a double binomial probability distribution. In addition, they place strict concentration limitations on the amount of less-than-investment-grade debt that can be held in a portfolio.

2-Cash Flow CDO Page 20 Wednesday, August 14, 2002 11:14 AM 20 COLLATERALIZED DEBT OBLIGATIONS: STRUCTURES AND ANALYSIS Once the overcollateralization ratio for a tranche is computed, it is then compared to the overcollateralization trigger for the tranche as specified in the guidelines. If the computed overcollateralization ratio is greater than or equal to the overcollateralization trigger for the tranche, then the test is passed with respect to that tranche. For Duke Funding 1, the overcollateralization trigger is 113% for Class A and 101% for Class B.

The 2-Cash Flow CDO Page 27 Wednesday, August 14, 2002 11:14 AM Cash Flow CDOs 27 cumulative probability of default will be larger the longer the portfolio is outstanding. 1% probability of default for each of the independent, uncorrelated assets defaulting in a 10-year period. 57% probability of default after 9 years. Note that the systematic bias in mapping actual defaults to WARF scores results in the rating methodology being more conservative for investment-grade corporate bonds deals than for high-yield corporate bond deals.

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Collateralized Debt Obligations: Structures and Analysis by Laurie S. Goodman;Frank J. Fabozzi


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