Loss Allocation in Securitization Transactions
AbstractThis paper analyses the loss allocation to First, Second and Third Loss Positions in European collateralized debt obligation transactions. The quality of the underlying asset pool plays a predominant role for the loss allocation. A lower asset pool quality induces the originator to take a higher First Loss Position, but, in a synthetic transaction, a smaller Third Loss Position. The share of expected default losses, borne by the First Loss Position, is largely independent of asset pool quality, but lower in securitizations of corporate loans than in those of corporate bonds. Originators with a good rating and low Tobin´s Q prefer synthetic transactions.
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Bibliographic InfoPaper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2011-22.
Length: 56 pages
Date of creation: 26 Apr 2011
Date of revision:
Other versions of this item:
- Franke, Günter & Herrmann, Markus & Weber, Thomas, 2012. "Loss Allocation in Securitization Transactions," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 47(05), pages 1125-1153, October.
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-11 (All new papers)
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- Wojtowicz, Marcin, 2014. "CDOs and the financial crisis: Credit ratings and fair premia," Journal of Banking & Finance, Elsevier, Elsevier, vol. 39(C), pages 1-13.
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