Description
Book SynopsisA serious source of information for those looking to reverse engineer business deals It's clear from the current turbulence on Wall Street that the inner workings of its most complex transactions are poorly understood. Wall Street deals parse risk using intricate legal terminology that is difficult to translate into an analytical model. Reverse Engineering Deals on Wall Street: A Step-By-Step Guide takes readers through a detailed methodology of deconstructing the public deal documentation of a modern Wall Street transaction and applying the deconstructed elements to create a fully dynamic model that can be used for risk and investment analysis.
Appropriate for the current market climate, an actual residential mortgage backed security (RMBS) transaction is taken from prospectus to model by the end of the book. Step by step, Allman walks the reader through the reversing process with textual excerpts from the prospectus and discussions on how it directly transfer
Table of Contents
Preface.
Acknowledgments.
About the Author.
CHAPTER 1: Introduction.
The Transaction.
The Documents.
The Process.
How This Book Works.
CHAPTER 2: Determining Dates and Setting Up Timing.
Differences in Timing Approaches.
A First Look at the Prospectus.
Important Dates.
Transforming Dates and Timing from Words to a Model.
Model Builder 2.1: Reversing Dates and Timing.
Conclusion of Dates and Timing.
CHAPTER 3: Creating Asset Cash Flow from Prospectus Data.
It’s All in the Prospectus Supplement.
The Basics of Amortization.
Performance and the Prospectus Supplement.
Delinquency.
Loss.
Prepayment.
Recovery.
Creating Cash Flow.
A Complex Implementation.
Model Builder 3.1: Entering in the Raw Asset Information.
Model Builder 3.2: Entering in the Default and Prepayment Assumptions.
Model Builder 3.3: Interest Rates and Additional Asset Amortization Inputs.
Model Builder 3.4: Introducing VBA and Moving Data In and Out of the Model.
Model Builder 3.5: Loading Loan Performance Assumptions into VBA.
Model Builder 3.6: Global Functions.
Model Builder 3.7: Loan-Level Asset Amortization.
CHAPTER 4: Setting Up Liability Assumptions, Paying Fees, and Distributing Interest.
Identifying the Offered Securities.
Model Builder 4.1: Transferring the Liability Information to a Consolidated Sheet.
The Liability Waterfall: A System of Priority.
Model Builder 4.2: Starting the Waterfall with Fees.
Interest: No Financing Is Free.
Model Builder 4.3: Continuing the Waterfall with Interest Paid to the Certificate Holders.
More on Waterfalls and Wall Street’s Risk Parsing.
Model Builder 4.4: Mezzanine Interest.
Continuing the Waterfall: It Only Gets More Complicated.
CHAPTER 5: Principal Repayment and the Shifting Nature of a Wall Street Deal.
Model Builder 5.1: The Deal State and Senior Principal.
Mezzanine Principal Returns.
Model Builder 5.2: The Mezzanine Certificates’ Priority of Payments.
Number Games or Risk Parsing?
CHAPTER 6: Credit Enhancement Mechanisms to Mitigate Loss.
Model Builder 6.1: Excess Spread, Overcollateralization, and Credit Enhancement.
CHAPTER 7: Auditing the Model.
Model Builder 7.1.
CHAPTER 8: Conclusion of Example Transaction and Final Thoughts on Reverse Engineering.
Mortgage Insurance and Servicer Advances.
Reverse Engineering in the Current and Future Market.
Appendix.
Automatic Range Naming.
About the CD-ROM.
Index.
