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Credit Derivative
In finance, a credit derivative refers to any one of "various instruments and techniques designed to separate and then transfer the ''credit risk''"The Economist ''Passing on the risks'' 2 November 1996 or the risk of an event of default of a corporate or sovereign borrower, transferring it to an entity other than the lender or debtholder. An unfunded credit derivative is one where credit protection is bought and sold between bilateral counterparties without the protection seller having to put up money upfront or at any given time during the life of the deal unless an event of default occurs. Usually these contracts are traded pursuant to an International Swaps and Derivatives Association (ISDA) master agreement. Most credit derivatives of this sort are credit default swaps. If the credit derivative is entered into by a financial institution or a special purpose vehicle (SPV) and payments under the credit derivative are funded using securitization techniques, such that a debt ob ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Finance
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of financial economics bridges the two). Finance activities take place in financial systems at various scopes, thus the field can be roughly divided into personal, corporate, and public finance. In a financial system, assets are bought, sold, or traded as financial instruments, such as currencies, loans, bonds, shares, stocks, options, futures, etc. Assets can also be banked, invested, and insured to maximize value and minimize loss. In practice, risks are always present in any financial action and entities. A broad range of subfields within finance exist due to its wide scope. Asset, money, risk and investment management aim to maximize value and minimize volatility. Financial analysis is viability, stability, and profitability asse ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Credit Default Swap
A credit default swap (CDS) is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default (by the debtor) or other credit event. That is, the seller of the CDS insures the buyer against some reference asset defaulting. The buyer of the CDS makes a series of payments (the CDS "fee" or "spread") to the seller and, in exchange, may expect to receive a payoff if the asset defaults. In the event of default, the buyer of the credit default swap receives compensation (usually the face value of the loan), and the seller of the CDS takes possession of the defaulted loan or its market value in cash. However, anyone can purchase a CDS, even buyers who do not hold the loan instrument and who have no direct insurable interest in the loan (these are called "naked" CDSs). If there are more CDS contracts outstanding than bonds in existence, a protocol exists to hold a credit event auction. The payment received is often substantially less ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Synthetic CDO
A synthetic CDO (collateralized debt obligation) is a variation of a CDO that generally uses credit default swaps and other derivatives to obtain its investment goals.Lemke, Lins and Picard, ''Mortgage-Backed Securities'', §5:16 (Thomson West, 2017-2018 ed.). As such, it is a complex derivative financial security sometimes described as a bet on the performance of other mortgage (or other) products, rather than a real mortgage security. The value and payment stream of a synthetic CDO is derived not from cash assets, like mortgages or credit card payments – as in the case of a regular or "cash" CDO—but from premiums paying for credit default swap "insurance" on the possibility of default of some defined set of "reference" securities—based on cash assets. The insurance-buying " counterparties" may own the "reference" securities and be managing the risk of their default, or may be speculators who've calculated that the securities will default. Synthetics thrived for a brief time ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Collateralized Loan Obligation
Collateralized loan obligations (CLOs) are a form of securitization where payments from multiple middle sized and large business loans are pooled together and passed on to different classes of owners in various tranches. A CLO is a type of collateralized debt obligation. Leveraging Each class of owner may receive larger yields in exchange for being the first in line to risk losing money if the businesses fail to repay the loans that a CLO has purchased. The actual loans used are multimillion-dollar loans to either privately or publicly owned enterprises. Known as syndicated loans and originated by a lead bank with the intention of the majority of the loans being immediately "syndicated", or sold, to the collateralized loan obligation owners. The lead bank retains a minority amount of highest quality tranche of the loan while usually maintaining "agent" responsibilities representing the interests of the syndicate of CLOs as well as servicing the loan payments to the syndicat ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
CDO-Squared
CDO-Squared is a collateralized debt obligations backed primarily by the tranches issued by other CDOs. These instruments became popular before the financial crisis of 2007–08. There were 36 CDO-Squared deals made in 2005, 48 in 2006 and 41 in 2007. Merrill Lynch was a big producer, creating and selling 11 of them. The collapse of the market for collateralized debt obligations and CDO-Squared contributed to the 2008 subprime mortgage crisis. Goldman Sachs Goldman Sachs () is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered at 200 West Street in Lower Manhattan, with regional headquarters in London, Warsaw, Bangalore, H ... appears to be the last bank to hold CDOs-Squared, holding $50 million in June 2018. 2004 *Abacus 2004-2 *Abacus 2004-3 *ACA 2004-1 *Cascade Funding I *Crystal Cove *Davis Square Funding III *Dunhill *E-Trade III *Glacier Funding I *Glacier Funding II *Independence V *Jupiter Hi ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Collateralized Debt Obligation
A collateralized debt obligation (CDO) is a type of structured asset-backed security (ABS). Originally developed as instruments for the corporate debt markets, after 2002 CDOs became vehicles for refinancing mortgage-backed securities (MBS).Lepke, Lins and Pi card, ''Mortgage-Backed Securities'', §5:15 (Thomson West, 2014). Like other private label securities backed by assets, a CDO can be thought of as a promise to pay investors in a prescribed sequence, based on the cash flow the CDO collects from the pool of bonds or other assets it owns. Distinctively, CDO credit risk is typically assessed based on a probability of default (PD) derived from ratings on those bonds or assets. The CDO is "sliced" into sections known as "tranches", which "catch" the cash flow of interest and principal payments in sequence based on seniority. If some loans default and the cash collected by the CDO is insufficient to pay all of its investors, those in the lowest, most "junior" tranches suffer loss ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Credit Rating
A credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government), predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting. The credit rating represents an evaluation of a credit rating agency of the qualitative and quantitative information for the prospective debtor, including information provided by the prospective debtor and other non-public information obtained by the credit rating agency's analysts. Credit reporting (or credit score) – is a subset of credit rating – it is a numeric evaluation of an ''individual's'' credit worthiness, which is done by a credit bureau or consumer credit reporting agency. Sovereign credit ratings A sovereign credit rating is the credit rating of a sovereign entity, such as a national government. The sovereign credit rating indicates the risk level of the investing environment of a country and is used by investors whe ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Constant Proportion Portfolio Insurance
Constant proportion portfolio investment (CPPI) is a trading strategy that allows an investor to maintain an exposure to the upside potential of a risky asset while providing a capital guarantee against downside risk. The outcome of the CPPI strategy is somewhat similar to that of buying a call option, but does not use option contracts. Thus CPPI is sometimes referred to as a convex strategy, as opposed to a "concave strategy" like Constant mix (investment), constant mix. CPPI products on a variety of risky assets have been sold by financial institutions, including equity indices and credit default swap indices. Constant proportion portfolio insurance (CPPI) was first studied by Perold (1986)André F. Perold (August 1986). "Constant Proportion Portfolio Insurance", Harvard Business School. for fixed-income instruments and by Black and Jones (1987), Black and Rouhani (1989),Fischer Black and Ramine Rouhani (1989). "Constant Proportion Portfolio Insurance and the Synthetic Put Option ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Constant Proportion Debt Obligation
A Constant proportion debt obligation (CPDO) is a type of credit derivative sold to investors looking for exposure to credit risk. A CPDO is normally embedded in a note rated by a credit rating agency. CPDOs employ dynamic leveraging in a similar (but opposite) way to Credit CPPI trades. CPDOs are formed first by creating a SPV that issues a debt note. The SPV invests in an index of debt securities, commonly credit default swap indices such as CDX and iTraxx (in theory, this could be deal-specific, such as a bespoke portfolio of sovereign debt), similar to a CDO. The structure allows for continual adjustment of leverage such that the asset and liability spreads stay matched. In general this involves increasing leverage as when losses are taken, similar to a doubling strategy, in which one doubles one's bet at each coin toss until a win occurs. The investment index is periodically rolled, whereby the SPV must sell protection on the new index and buy back protection on the o ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Credit-linked Note
A credit-linked note (CLN) is a form of funded credit derivative. It is structured as a security with an embedded credit default swap allowing the issuer to transfer a specific credit risk to credit investors. The issuer is not obligated to repay the debt if a specified event occurs. This eliminates a third-party insurance provider. It is a structured note issued by a special purpose company or trust, designed to offer investors par value at maturity unless the referenced entity defaults. In the case of default, the investors receive a recovery rate. The trust will also have entered into a default swap with a dealer. In case of default, the dealer will pay the trust par minus the recovery rate, in exchange for an annual fee which is passed on to the investors in the form of a higher yield on their note. The purpose of the arrangement is to pass the risk of specific default onto investors willing to bear that risk in return for the higher yield it makes available. The CLNs themse ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
