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CovalJurek+StaffordExample

CovalJurek+StaffordExample - Lecture 5 ECON 220A Fall 2011...

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Lecture 5, ECON 220A, Fall 2011 Dale J. Poirier Coval, Jurek, and Stafford (2009, JEP ) The essence of structured finance activities is the pooling of economic assets like bonds, and the subsequent issuance of a prioritized capital structure of claims, known as tranches , against these collateral pools. C As a result of the prioritization scheme used in structuring claims, many of the manufactured tranches are far safer than the average asset in the underlying pool. C At the core of the 2008 financial market crisis has been the discovery that these securities are actually far riskier than originally advertised.
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