Finance Project

In the residential mortgagebacked securities (RMBS) sector. In a second stage, we focus on the more advanced modeling techniques that have emerged among the most active market participants.

From an historical perspective, the structured finance market began with the issuance of the first mortgage-backed security in the U.S. by the Government National Mortgage Association (Ginnie Mae) in 1968. Soon after, the Federal Home Loan Mortgage Corporation (Freddie Mac) introduced its mortgage participation certificates in 1970, and, by 1977, the Federal National Mortgage Association (Fannie Mae) was in the game.
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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.
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