This book is an introduction to the modelling of cash collateralised debt obligations (CDOs). It is intended that the reader have a basic understanding of CDOs and a basic working knowledge of Microsoft Office Excel. There will be written explanations of concepts along with understandable mathematical explanations and examples provided in Excel. A CD-ROM containing these Excel examples will accompany the book.
Book Details:
- Author: Darren Smith
- ISBN: 9780470741573
- Year Published: 2010
- Pages: 356
- BISAC: BUS027000, BUSINESS & ECONOMICS/Finance
About the Book and Topic:
This book is an introduction to the modelling of cash collateralised debt obligations (CDOs). It is intended that the reader have a basic understanding of CDOs and a basic working knowledge of Microsoft Office Excel. There will be written explanations of concepts along with understandable mathematical explanations and examples provided in Excel. A CD-ROM containing these Excel examples will accompany the book.
CDOs (collateralized debt obligations) are a type of asset-backed security and structured credit product. CDOs are constructed from a portfolio of fixed-income assets. These assets are divided into different tranches: senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches (unrated). Losses are applied in reverse order of seniority and so junior tranches offer higher coupons (interest rates) to compensate for the added default risk. CDOs serve as an important funding vehicle for fixed-income assets. Some news and media commentary blame the financial woes of the 2007 credit crunch on the complexity of CDO products, and the failure of risk and recovery models used by credit rating agencies to value these products. Some institutions buying CDOs lacked the competency to monitor credit performance and/or estimate expected cash flows. As many CDO products are held on a mark to market basis, the paralysis in the credit markets and the collapse of liquidity in these products led to substantial write-downs in 2007. Major loss of confidence occurred in the validity of process used by ratings agencies to assign credit ratings to CDO tranches and persists into 2008.
· UNIQUE PERSPECTIVE. Although there is a fair amount of literature on CDOs and modelling of synthetic CDOs, there has been little written on how to model cash flow CDOs. This book breaks new ground by doing such offering an introduction to the modelling of Cash CDOs. · SUBJECT OF CURRENT INTEREST. According to the Securities Industry and Financial Markets Association cash CDO issuance was over USD 400 billion in 2006 meaning that there is a great deal of general interest in CDOs and the sub-prime market. · CD ROM containing Excel examples of concepts covered in the book.
About the Author
Darren Smith, London, UK currently heads the CDO team at WestLB. He has over 10 years experience in the Cash CDO market, and has executed numerous transactions in asset classes as diverse as loans, bonds, emerging market bonds, asset backed securities, CDOs and credit default swaps. Prior to WestLB Darren worked in CDOs at PaineWebber, UBS, and was co-head of CDOs at Dresdner Kleinwort. He has spoken at numerous conferences including the Global ABS Conference, Barcelona, and CDO Europe conferences sponsored by Opal. Darren holds a bachelors degree in Electronic Engineering from the University of South Australia Pamela Winchie, London, UK is currently a director in the European CDO group at Barclays Capital, prior to which she was a director in the cash CDO group at Dresdner Kleinwort. She has over 8 years experience both as a cash CDO structurer and as a lawyer involved in corporate, securities and securitization law. She has modeled and structured numerous CDOs in various currencies with a range of underlying assets and has spoken at a number of conferences including the CRE-CDO Summit, London, and the 2nd International Structured Product conference, Israel. Pamela holds a bachelors degree in Mathematics and Statistics from the University of Western Ontario and a Bachelor of Law from Osgoode Hall Law School.