Subprime Mortgage Credit Derivatives / Edition 1

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Overview

Subprime mortgage bonds and ABS CDOs have become the biggest credit and risk management failure in history. Their story is one of how a small, inconsequential part of the mortgage market grew into a monster large enough to shake the very foundations of the U.S. financial system. It is a story with some elements that are old and some that are new, and it is a story that is far from over. In the meantime, analysts and investors are left wondering about how the {dollar}700 billion of outstanding subprime securities should be valued.

Written by an expert team of practitioners from UBS-the world's largest wealth manager and a top tier investment banking and securities firm-and Frank Fabozzi of Yale University, Subprime Mortgage Credit Derivatives offers readers the best strategies and risk management tools for dealing with today's growing and currently volatile subprime mortgage credit derivatives market. The authors examine the factors that determine default and prepayment risk, and in the process outline the origins of the current subprime crisis. They look at how the three forms of subprime mortgage risk-cash, single name ABCDS, and the ABX-differ and what drives their relative spreads. And they examine the salient features of the excess spread/overcollateralization structure used on most subprime securities since 1998, showing how even a small change in the prepayment rate or default rate can cause a major shift in cash flows, which in turn can have a major impact on valuations.

Explaining how an understanding of ISDA CDO CDS documentation is critical, the authors dissect this document into its working parts and explain each-sorting out the five credit problems the documentationrecognizes can happen to a CDO and the two consequences for which the documentation provides. They also provide a simple model that will prove useful in predicting which lower quality bonds will write down and when the write-downs will happen.

For all those who want to go long or short these derivatives-as well as understand more about the market pricing of cash underlyings-Subprime Mortgage Credit Derivatives will prove to be an invaluable resource.

About the Author:
Laurie S. Goodman, PhD, is Managing Director and cohead of Global Fixed Income Research at UBS

About the Author:
Shumin Li is Executive Director in the U.S. Securitized Products Strategy Group at UBS

About the Author:
Douglas J. Lucas is Executive Director and head of CDO research at UBS

About the Author:
Thomas A. Zimmerman is Managing Director in the U.S. Securitized Products Strategy Group at UBS

About the Author:
Frank J. Fabozzi, PhD, CFA, is Professor in the Practice of Finance at Yale University's School of Management and the Editor of the Journal of Portfolio Management

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Product Details

  • ISBN-13: 9780470243664
  • Publisher: Wiley
  • Publication date: 6/27/2008
  • Series: Frank J. Fabozzi Series , #159
  • Edition number: 1
  • Pages: 334
  • Sales rank: 1,031,726
  • Product dimensions: 6.10 (w) x 9.10 (h) x 1.20 (d)

Table of Contents

Pt. 1 Mortgage Credit 1

Ch. 1 Overview of the Nonagency Mortgage Market 3

Ch. 2 First Lien Mortgage Credit 27

Ch. 3 Second Lien Mortgage Credit 73

Pt. 2 Mortgage Securitizations 87

Ch. 4 Features of Excess Spread/Overcollateralization: The Principle Subprime Structure 88

Ch. 5 Subprime Triggers and Step-Downs 111

Pt. 3 Credit Default Swaps on Mortgage Securities 123

Ch. 6 Introduction to Credit Default Swap on ABS CDS 125

Ch. 7 The ABX and TABX Indices 145

Ch. 8 Relationship among Cash, ABCDS, and the ABX 161

Ch. 9 Credit Default Swaps on CDOs 177

Pt. 4 Loss Projection and Security Valuation 191

Ch. 10 Loss Projection for Subprime, Alt-A, and Second Lien Mortgages 183

Ch. 11 Valuing the ABX 211

Ch. 12 ABS CDO Losses and Valuation 269

Pt. 5 Subprime Meltdown 293

Ch. 13 The Great Subprime Meltdown of 2007 295

Index 319

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