Optimizing return on regulatory and economic capital is a key concern for bank portfolio managers. Reducing the capital backing existing holdings can help redeploy the capital to more profitable businesses, shrink the balance sheet, or boost returns.
One obvious way of reducing the capital held is to sell a particular set of assets that are capital-intensive. But these assets tend also to be the ones that yield more and selling them could harm the return on the banks portfolios. CDO technology enables banks to keep most of the returns while significantly reducing regulatory capital.
Continue Reading »
Posted in Finance, Strategy
There are several common trading strategies that being used by businessman, those are:
Elementary Portfolio
Selling protection on an index of credit default swap (CDS) is an example of an elementary credit portfolio. For example, the credit index, CDX.NA.IG, consisting of 125 North American credits, will be used to provide sample calculations. The risk-profile for the CDO trades will be compared with risks incurred in simply selling protection on the index.
Continue Reading »
Posted in Finance, Strategy
Although the market size of SF products such as asset-backed securities (ABS), collateralized debt obligations (CDO), residential-mortgage backed securities (RMBS), etc. has grown enormously over the past decade, only little is known about their behavior in terms of rating migration, especially default, compared to corporates.
Credit risk portfolio models generally rely on the estimation of rating migration and/or default probabilities and asset correlation between exposures.† The latter significantly affects the portfolio loss distribution and in particular the tails of the distribution. Therefore, the accuracy of these parameter estimates is of vital importance. Another way to secure your assets is by buying insurance, some insurance giving full warranty and ease of access in document and filling.
Continue Reading »
Posted in Investment, Loan