This question tested from topic area 2 topic 27 aim 2

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This question tested from Topic Area 2, Topic 27, AIM 228: Structured Credit RiskQuestion 1D was correctTwo examples of internal credit enhancements are overcollateralization and excess spread.Overcollateralization is when the pool offers claims for less than the amount of the collateral. Overcollateralization is a hard credit enhancement because the protection is available at the origination of the pool.
91全球财经证书培训领导品牌The excess spread is the difference between the cash flows collected and the payments made to allbondholders. It is considered a soft credit enhancement since it is not available at origination.This question tested from Topic Area 2, Topic 28, AIM 2Question 2A was correctIncreasing granularity would benefit—not harm—the overall securitization, removing the impact of outliers inthe collateral. Credit pools can be well-diversified but still suffer from systematic risk. As default correlationincreases, the senior tranches are more exposed to writedowns. Credit card receivables are more granular(i.e., smaller) than average mortgages.This question tested from Topic Area 2, Topic 28, AIM 9Question 3D was correctOnly statement III is correct. Recovery rates are not a critical parameter to estimate with simulations. Similarly,the correlation between tranches is not an important or well-defined concept in the curriculum.This question tested from Topic Area 2, Topic 28, AIM 7Question 4C was correctCovered bonds are safer investments than traditional securitizations because the securities are backed by theoriginator, not just the pledge collateral. Auto loans are more likely to appear in static pools since there is a setamortization schedule. Many mortgages have an explicit or implicit guarantee from the government so defaultrisk is not a major concern. Instead, prepayment risk is the primary risk factor.This question tested from Topic Area 2, Topic 28, AIM 1Question 5C was correctPrincipal and interest payments are paid based on the performance of the underlying assets for mortgagepass-through securities, collateralized mortgage obligations, and structured credit products. Covered bonds
92全球财经证书培训领导品牌are on-balance sheet securitizations. Investors have higher priority than general creditors if a bank defaults.Principal and interest is paid and guaranteed by the originator and is not based on the performance of theunderlying assets themselves.This question tested from Topic Area 2, Topic 28, AIM 1Question 6D was correctIn a waterfall structure with multiple tranches, the senior and mezzanine investors are satisfied first. Theresidual cash flow, if any, is called the excess spread. The overcollateralization triggers will decide how theexcess is divided between the equity investors and the accumulation trust. The equity tranche is satisfiedbefore the accumulation trust, usually a set amount giving the holders the right to a maximum amount whenthe overcollateralization trigger(s) is met.

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Term
Winter
Professor
lintao
Tags
Mathematical finance, Value at risk

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