General equilibrium existence with asset-backed securitization
AbstractWe propose a specification of a general equilibrium model with securitization of collateral-backed promises and discuss the role of physical collateral to avoid, in equilibrium, pessimistic beliefs about the future rates of default. Promises are pooled in either pass-through securities or collateralized loans obligations (CLO), allowing the existence of different seniority lev- els among tranches in the same CLO. In case of default, borrowers may also suffer extra-economic penalties, which are internalized into a structure of non-ordered preferences. In this context, we prove the existence of an equilibrium in that investors are not over-pessimistic about the payments of derivatives. JEL Codes: D52, D91
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Bibliographic InfoPaper provided by Department of Economics PUC-Rio (Brazil) in its series Textos para discussão with number 490.
Date of creation: Oct 2004
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Asset Backed-Securitization; Extra-economic Default Penalties; Collateral; Non- ordered Preferences;
Find related papers by JEL classification:
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
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