The Pooling and Tranching of Securities: A Model of Informed Intermediation
I show that when an issuer has superior information about the value of its assets, it is better off selling assets separately rather than as a pool due to the information destruction effect of pooling. If, however, the issuer can create a derivative security that is collateralized by the assets, pooling and "tranching" may be optimal. If the residual risk of each asset is not highly correlated, tranching allows the issuer to exploit the risk diversification effect of pooling to create a low-risk and highly liquid security. In contrast, for an uninformed seller, pure pooling reduces underpricing and is preferred to separate asset sales. These results lead to a dynamic model of financial intermediation: originators sell pools of assets, some of which are purchased by informed intermediaries who then further pool and tranche them. Pooling and tranching allow intermediaries to leverage their capital more efficiently, enhancing the returns to their private information. Copyright 2005, Oxford University Press.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 18 (2005)
Issue (Month): 1 ()
|Contact details of provider:|| Postal: Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.|
Web page: http://www.rfs.oupjournals.org/
More information through EDIRC
|Order Information:||Web: http://www4.oup.co.uk/revfin/subinfo/|
When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:18:y:2005:i:1:p:1-35. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.