Structured Products and Related Credit Derivatives: A by Brian P. Lancaster

By Brian P. Lancaster

Full of the insights of various skilled members, dependent items and similar credits Derivatives takes a close examine a number of the points of established resources and credits derivatives. Written over a interval spanning the best bull industry in dependent items historical past to arguably its so much demanding interval, this trustworthy source can help you determine the possibilities and mitigate the dangers during this advanced monetary marketplace.

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Extra resources for Structured Products and Related Credit Derivatives: A Comprehensive Guide for Investors (Frank J. Fabozzi Series)

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Interest rate and F/X risk in most SIVs are tested daily and must remain within the operating limits to comply with the SIV’s operating guide2 Recent SIVs have begun “short portfolio” programs that take the residual spread payable to capital note holders and purchase synthetic “protection” during tight spread environments. The belief is that spreads will widen and returns to capital note holders will be augmented. However, if spreads remain tight the cost of carry can become a drag on subordinated capital note holders’ returns.

Documentation risk for repo and TRS contracts on which collateral enters and exits certain types of vehicles. 3. Timing risk in SIVs in the event that subordinated investors wish to liquidate their holdings and new capital note investors must be found. 4. Liquidity matching risk for those structures that do not carry any type of external liquidity support. 5. Prepayment risk and extension risks for senior notes and CP with call and extension features. 6. Model risk (reliance on a capital model to identify asset volatility, concentration risk and lending values, which has turned out to be one of the biggest risks to which the SFOC market has shown vulnerability).

00% Orig. 0 Orig. LTV: 80% Orig. 96 Loan Type: 2/28 hybrid ARM Loan Age HPI Home Price Curr. 260 Source: Wachovia Capital Markets, LLC, and OFHEO. 8) is measured by the loan rate less the Fannie Mae conforming rate adjusted for credit grade. 5 10% Borrower Incentive Source: Wachovia Capital Markets, LLC. 7%, respectively. 9%, respectively. 6%, respectively. 7% at the maximum relative to no-penalty loans. Of particular note is the convergence/divergence of CRR as the borrower’s incentive declines/increases.

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