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Investors’ heterogeneity and tranching

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  • Frank Yong Wang
  • Xu Wei
  • Li Li

Abstract

The article presents a theoretic model of tranching in asset securitization. When potential buyers are heterogeneous in the constraint on their portfolios, we find that senior tranche, which is less risky and created by tranching, will introduce more investors and thus reduce risk exposure to investors. Thus, tranching helps improve the sale’s revenue. We also find that the portfolio constraints of investors are always binding at optimum, which is called marginal rating.

Suggested Citation

  • Frank Yong Wang & Xu Wei & Li Li, 2016. "Investors’ heterogeneity and tranching," Applied Economics, Taylor & Francis Journals, vol. 48(38), pages 3679-3684, August.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:38:p:3679-3684
    DOI: 10.1080/00036846.2016.1142661
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    Cited by:

    1. Stallkamp, Maximilian & Hunt, Richard A. & Schotter, Andreas P.J., 2022. "Scaling, fast and slow: The internationalization of digital ventures," Journal of Business Research, Elsevier, vol. 146(C), pages 95-106.
    2. Abdul Halim, Zairihan & How, Janice & Verhoeven, Peter & Hassan, M. Kabir, 2020. "Asymmetric information and securitization design in Islamic capital markets," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).

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