{"product_id":"the-structured-credit-handbook-321-wiley-finance-9780471747499","title":"The Structured Credit Handbook 321 Wiley Finance","description":"\u003cb\u003eBook Synopsis\u003c\/b\u003e\u003cbr\u003eThe Structured Credit Handbook is a comprehensive introduction to all types of credit--linked financial instruments. This book provides state--of--the--art primers on single tranche collateralized debt obligations (CDOs), collateralized loan obligations (CLOs), credit derivatives (such as credit default swaps and swaptions), and iBoxx indexes.\u003cbr\u003e\u003cbr\u003e\u003cb\u003eTable of Contents\u003c\/b\u003e\u003cbr\u003e\u003cp\u003eAcknowledgments xix\u003c\/p\u003e \u003cp\u003eAbout the Authors xxi\u003c\/p\u003e \u003cp\u003eAbout the Contributors xxiii\u003c\/p\u003e \u003cp\u003e\u003cb\u003eIntroduction: A Roadmap of the New World of Structured Credit 1\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eHow Structured Credit Completes Markets 2\u003c\/p\u003e \u003cp\u003eEnabling Technology 3\u003c\/p\u003e \u003cp\u003eImproved Liquidity, Transparency, and Customizability 3\u003c\/p\u003e \u003cp\u003eGrowth of Structured Credit Markets 4\u003c\/p\u003e \u003cp\u003eAsset Classes 4\u003c\/p\u003e \u003cp\u003eProducts 4\u003c\/p\u003e \u003cp\u003eParticipants 7\u003c\/p\u003e \u003cp\u003eCore Uses of Structured Credit 8\u003c\/p\u003e \u003cp\u003eNonrecourse Leverage 8\u003c\/p\u003e \u003cp\u003eDiversification 8\u003c\/p\u003e \u003cp\u003eCustomization of Risk Profiles 9\u003c\/p\u003e \u003cp\u003eSeparating Legal from Beneficial Ownership 9\u003c\/p\u003e \u003cp\u003eSeparating Funding from Risk Transfer 9\u003c\/p\u003e \u003cp\u003eIsolating and Hedging Risk 10\u003c\/p\u003e \u003cp\u003eRepresentative Examples of Structured Credit Solutions 10\u003c\/p\u003e \u003cp\u003eWho Should Read This Book? 11\u003c\/p\u003e \u003cp\u003eHow This Book Is Organized 11\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART ONE Index and Single-Name Products\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 1 A Primer on Credit Default Swaps 17 \u003cbr\u003e\u003c\/b\u003e\u003ci\u003eArvind Rajan\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003eThe Market for Credit Default Swaps 17\u003c\/p\u003e \u003cp\u003eTransaction Terminology and Mechanics 22\u003c\/p\u003e \u003cp\u003ePrerequisites for Credit Derivatives Transactions 22\u003c\/p\u003e \u003cp\u003eWhat Happens in Case of a Credit Event? 23\u003c\/p\u003e \u003cp\u003eUnwinding Default Swap Transactions 25\u003c\/p\u003e \u003cp\u003eThe DV01 of a Credit Default Swap 25\u003c\/p\u003e \u003cp\u003eThe Default-Cash Basis 26\u003c\/p\u003e \u003cp\u003eSome Uses of Default Swaps 26\u003c\/p\u003e \u003cp\u003eBuying a Note versus Selling Default Protection 26\u003c\/p\u003e \u003cp\u003eFreeing Up or Using Bank Credit Lines 27\u003c\/p\u003e \u003cp\u003eFilling a Maturity Gap 28\u003c\/p\u003e \u003cp\u003eExpressing Curve or Forward-Rate Views 28\u003c\/p\u003e \u003cp\u003eBarbell-Bullet Trade 29\u003c\/p\u003e \u003cp\u003eTaking Advantage of Tight Repo Levels without Financing 29\u003c\/p\u003e \u003cp\u003eCase Study: Relative Value—Cashing In on the Curve Steepness in Telecoms 30\u003c\/p\u003e \u003cp\u003eHow to Blend CDs and Cash in Long-Maturity-Curve Trades 30\u003c\/p\u003e \u003cp\u003eImplementing Credit Curve Flatteners—Two Basic Approaches 33\u003c\/p\u003e \u003cp\u003eAppendix: Equivalence of a Bond Spread and Default Swap\u003c\/p\u003e \u003cp\u003ePremium 35\u003c\/p\u003e \u003cp\u003eSpecialness of the Underlying 36\u003c\/p\u003e \u003cp\u003eEffect of Accrued Default Swap Premium 36\u003c\/p\u003e \u003cp\u003eAccrued Interest on the Underlying Risky Security 37\u003c\/p\u003e \u003cp\u003eAccrued Interest on the Underlying Risk-Free\u003c\/p\u003e \u003cp\u003eSecurity 37\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 2 Credit Default Swaptions 39 \u003cbr\u003e\u003c\/b\u003e\u003ci\u003eArvind Rajan and Terry Benzschawel\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003ePayer Options 40\u003c\/p\u003e \u003cp\u003eExample—When to Buy a Payer 41\u003c\/p\u003e \u003cp\u003eExample—When to Sell a Payer 42\u003c\/p\u003e \u003cp\u003eReceiver Options 42\u003c\/p\u003e \u003cp\u003eExample—When to Buy a Receiver 43\u003c\/p\u003e \u003cp\u003eEffect of DV01 on Credit Swaption Payoffs 43\u003c\/p\u003e \u003cp\u003eExample—When to Sell a Receiver 44\u003c\/p\u003e \u003cp\u003eCredit Swaption Payoffs in Default 46\u003c\/p\u003e \u003cp\u003eCredit Swaption Implied Volatility 47\u003c\/p\u003e \u003cp\u003eConclusion 47\u003c\/p\u003e \u003cp\u003eCase Study: Are Tight Spreads Giving You Butterflies? 49\u003c\/p\u003e \u003cp\u003eIntroduction 49\u003c\/p\u003e \u003cp\u003eFloat Like a Butterfly, Sting Like a Bee 50\u003c\/p\u003e \u003cp\u003eButterfly versus Payer 50\u003c\/p\u003e \u003cp\u003eVariations 54\u003c\/p\u003e \u003cp\u003eDetails of Butterfly Construction 54\u003c\/p\u003e \u003cp\u003eConclusion 54\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 3 Constant Maturity Credit Default Swaps 57 \u003cbr\u003e\u003c\/b\u003e\u003ci\u003eOlivier Renault and Ratul Roy\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003eBasics of CMCDSs 57\u003c\/p\u003e \u003cp\u003eParticipation Rate 58\u003c\/p\u003e \u003cp\u003eBehavior of CMCDSs 59\u003c\/p\u003e \u003cp\u003eImpact of Spread Level 60\u003c\/p\u003e \u003cp\u003eImpact of Spread Volatility 64\u003c\/p\u003e \u003cp\u003eCapped CMCDS 66\u003c\/p\u003e \u003cp\u003eHedging CMCDSs 68\u003c\/p\u003e \u003cp\u003eTrading Strategies with CMCDSs 69\u003c\/p\u003e \u003cp\u003eSelling CMCDS Protection 69\u003c\/p\u003e \u003cp\u003eBuying CMCDS Protection 70\u003c\/p\u003e \u003cp\u003eCombination Trades and Index CMCDSs 70\u003c\/p\u003e \u003cp\u003eConclusion 72\u003c\/p\u003e \u003cp\u003eCase Study: Taking Curve Views with CMCDSs 72\u003c\/p\u003e \u003cp\u003eFeatures of CMCDSs 73\u003c\/p\u003e \u003cp\u003eTrade Ideas 73\u003c\/p\u003e \u003cp\u003eAppendix: Computing the Participation Rate 76\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 4 Credit Derivatives Indexes 79 \u003cbr\u003e\u003c\/b\u003e\u003ci\u003eJure Skarabot and Gaurav Bansal\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003eIntroduction 79\u003c\/p\u003e \u003cp\u003eFamily of Credit Derivatives Indexes 80\u003c\/p\u003e \u003cp\u003eStructure of the CDX\/iTraxx Index Family 81\u003c\/p\u003e \u003cp\u003eAdministration of Indexes 83\u003c\/p\u003e \u003cp\u003eBasket of Credit Default Swaps 83\u003c\/p\u003e \u003cp\u003eTrading Example—The Index 84\u003c\/p\u003e \u003cp\u003eUp-Front and Running Payments 84\u003c\/p\u003e \u003cp\u003eTrading Example—Premium Payments 85\u003c\/p\u003e \u003cp\u003eWhat Happens in Case of a Credit Event? 86\u003c\/p\u003e \u003cp\u003eTrading Example—Credit Event 87\u003c\/p\u003e \u003cp\u003eSettlement Process after Credit Event 87\u003c\/p\u003e \u003cp\u003ePhysical Settlement (Indexes and Tranche Products) 88\u003c\/p\u003e \u003cp\u003eCash Settlement (Tranche Product Only) 88\u003c\/p\u003e \u003cp\u003eRecent Defaults in CDX Indexes 88\u003c\/p\u003e \u003cp\u003eIndex versus Intrinsics 90\u003c\/p\u003e \u003cp\u003eInvestment Strategies with Credit Derivatives Indexes 91\u003c\/p\u003e \u003cp\u003eInvestors 92\u003c\/p\u003e \u003cp\u003eIndex-Related Structured Credit Products 92\u003c\/p\u003e \u003cp\u003eIssues and Concerns 93\u003c\/p\u003e \u003cp\u003eConclusion 93\u003c\/p\u003e \u003cp\u003eCase Study: DJ CDX HY and DJ CDX EM—Conversion of Price Level into a Spread Level 94\u003c\/p\u003e \u003cp\u003eCase Study: Using iTraxx to Replicate Bond Portfolios 94\u003c\/p\u003e \u003cp\u003eMotivation 94\u003c\/p\u003e \u003cp\u003eTypical Portfolio Risks 95\u003c\/p\u003e \u003cp\u003eReplicating Interest Rate Risks 96\u003c\/p\u003e \u003cp\u003eUsing iTraxx to Replicate Broad Credit Market Risk 96\u003c\/p\u003e \u003cp\u003eAdjusting for Single-Name Risk through Default Swaps 99\u003c\/p\u003e \u003cp\u003ePerformance 100\u003c\/p\u003e \u003cp\u003eConclusion 104\u003c\/p\u003e \u003cp\u003eAppendix: Description of the Roll Process 106\u003c\/p\u003e \u003cp\u003eRisky PV01 of a CDS Contract 106\u003c\/p\u003e \u003cp\u003eCalculation of Intrinsic Spread of the Index 107\u003c\/p\u003e \u003cp\u003eRisky PV01 of an Index 108\u003c\/p\u003e \u003cp\u003eMark-to-Market Estimation of an Index Position 108\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 5 The Added Dimensions of Credit—A Guide to Relative Value Trading 111 \u003cbr\u003e\u003c\/b\u003e\u003ci\u003eMatt King and Michael Sandigursky\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003eOverview of Curve Trades 111\u003c\/p\u003e \u003cp\u003eLearning Curves 112\u003c\/p\u003e \u003cp\u003eDrivers of Curve Steepness 113\u003c\/p\u003e \u003cp\u003ePutting on a Curve Trade 115\u003c\/p\u003e \u003cp\u003eCross-Currency Trades 116\u003c\/p\u003e \u003cp\u003eCross-Currency Opportunities in Bonds 117\u003c\/p\u003e \u003cp\u003eCross-Currency Trades in CDSs 117\u003c\/p\u003e \u003cp\u003eBasis Trades 118\u003c\/p\u003e \u003cp\u003eBack to Basis 118\u003c\/p\u003e \u003cp\u003eDrivers of Basis 122\u003c\/p\u003e \u003cp\u003eWhy CDSs and Bonds Are Two Sides of the Same Coin 122\u003c\/p\u003e \u003cp\u003eTrading the Basis 126\u003c\/p\u003e \u003cp\u003eA New Spread Measure: C-Spread 129\u003c\/p\u003e \u003cp\u003eDebt-Equity Trades 129\u003c\/p\u003e \u003cp\u003eMeet the Models 129\u003c\/p\u003e \u003cp\u003eThe Debt-Equity Cycle 130\u003c\/p\u003e \u003cp\u003eA Practical Hurdle or Two 131\u003c\/p\u003e \u003cp\u003eDebt-Equity Trading in Practice—Arbitrage or Mirage? 132\u003c\/p\u003e \u003cp\u003eDeciding What to Trade 133\u003c\/p\u003e \u003cp\u003eA Recovery Trade 134\u003c\/p\u003e \u003cp\u003eiTraxx Credit Indexes 134\u003c\/p\u003e \u003cp\u003eTruly Global 135\u003c\/p\u003e \u003cp\u003eYou’ve Got to Roll with It 136\u003c\/p\u003e \u003cp\u003eiTraxx Intrinsics 137\u003c\/p\u003e \u003cp\u003eWhat Happens When a Name Defaults? 139\u003c\/p\u003e \u003cp\u003eEquiweighted or Not 139\u003c\/p\u003e \u003cp\u003eSecond-Generation Products: iTraxx Tranches 139\u003c\/p\u003e \u003cp\u003eCredit Options 140\u003c\/p\u003e \u003cp\u003eIt’s a Knockout 140\u003c\/p\u003e \u003cp\u003eEffect of Convexity on Credit Option Payoffs 141\u003c\/p\u003e \u003cp\u003eDelta-Exchange 143\u003c\/p\u003e \u003cp\u003eWhy Sell an Option (Riskier Strategy) Rather Than Buy One? 143\u003c\/p\u003e \u003cp\u003eOption Strategies 144\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART TWO Portfolio Credit Derivatives\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 6 Single-Tranche CDOs 149 \u003cbr\u003e\u003c\/b\u003e\u003ci\u003eJure Skarabot, Ratul Roy, and Ji-Hoon Ryu\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003eOverview of Single-Tranche CDOs 149\u003c\/p\u003e \u003cp\u003eAdvantages of Single-Tranche CDOs 150\u003c\/p\u003e \u003cp\u003eKey Features of Single-Tranche CDO Transaction 150\u003c\/p\u003e \u003cp\u003eDescription of the Product and Basic Structure 151\u003c\/p\u003e \u003cp\u003eMain Decision Steps for Investors 153\u003c\/p\u003e \u003cp\u003eKey Issues in Modeling and Valuation 155\u003c\/p\u003e \u003cp\u003eSingle-Tranche CDO Risk Measures and Hedging 158\u003c\/p\u003e \u003cp\u003eSubstitution of Credits 164\u003c\/p\u003e \u003cp\u003eSingle-Tranche CDO Market 166\u003c\/p\u003e \u003cp\u003eInvestment Strategies 167\u003c\/p\u003e \u003cp\u003eCase Study: Dispersion Trades and Tranches 180\u003c\/p\u003e \u003cp\u003eTraditional Bull-Bear Trade 180\u003c\/p\u003e \u003cp\u003eNot Just Another Bull-Bear Tranche Trade 181\u003c\/p\u003e \u003cp\u003eWho’s Afraid of Blowups? 181\u003c\/p\u003e \u003cp\u003eBuy Protection on 10-Year 3 to 7 Percent CDX IG Tranche, Sell Protection on 5-Year 10 to 15 Percent CDX IG Tranche 183\u003c\/p\u003e \u003cp\u003eEffect of Blowups in CDX IG on the Dispersion Trade 184\u003c\/p\u003e \u003cp\u003eTrade Sensitivity Analysis 184\u003c\/p\u003e \u003cp\u003eHow to Choose the Most Efficient Tranches 187\u003c\/p\u003e \u003cp\u003eConclusions 190\u003c\/p\u003e \u003cp\u003eCase Study: Attractions of Hedged Mezzanines 190\u003c\/p\u003e \u003cp\u003eMotivation 191\u003c\/p\u003e \u003cp\u003eThe Trade 191\u003c\/p\u003e \u003cp\u003eComparing Delta-Hedged Equity and Mezzanines 192\u003c\/p\u003e \u003cp\u003eTime-Decay Profile 194\u003c\/p\u003e \u003cp\u003eConclusion 195\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 7 Trading Credit Tranches: Taking Default Correlation out of the Black Box 197 \u003cbr\u003e\u003c\/b\u003e\u003ci\u003eRatul Roy\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003eThe Credit Tranche Market 197\u003c\/p\u003e \u003cp\u003eImportance of Default Correlation in Tranches 199\u003c\/p\u003e \u003cp\u003eProblems with Traditional Correlation Measure 199\u003c\/p\u003e \u003cp\u003eSkew in Default Correlation 201\u003c\/p\u003e \u003cp\u003eFurther Flaws in Tranche Correlation 201\u003c\/p\u003e \u003cp\u003eCorrelation Skew Is Like a Volatility Surface 201\u003c\/p\u003e \u003cp\u003eSkew Is Market’s Risk Preference 204\u003c\/p\u003e \u003cp\u003eInvestor Risk Appetite May Scale Across Markets 207\u003c\/p\u003e \u003cp\u003eGreeks: Managing Correlation and Delta Risk 209\u003c\/p\u003e \u003cp\u003eIn Summary: Why Skew Is a Better Model 213\u003c\/p\u003e \u003cp\u003eTrading Opportunities for Investors 214\u003c\/p\u003e \u003cp\u003eTranche Correlation Can Still Provide Insight 214\u003c\/p\u003e \u003cp\u003ePricing Off-Market Tranches 217\u003c\/p\u003e \u003cp\u003eConclusion and Future Agenda 219\u003c\/p\u003e \u003cp\u003eCase Study: Curve Trades in Tranche Markets 220\u003c\/p\u003e \u003cp\u003eCurve Trades, Tranche Markets, and Technicals 220\u003c\/p\u003e \u003cp\u003eTrade Recommendation 221\u003c\/p\u003e \u003cp\u003eMarket Drivers for the Tranche Curve Trades 221\u003c\/p\u003e \u003cp\u003eBase Correlation Analysis and Market Technicals 223\u003c\/p\u003e \u003cp\u003eTechnicals Driving the Flattening of Tranche Curves 224\u003c\/p\u003e \u003cp\u003eAnalysis of Investment Strategy 225\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 8 Understanding CDO-Squareds 229 \u003cbr\u003e\u003c\/b\u003e\u003ci\u003eRatul Roy and Matt King\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003eCDOs versus CDO\u003csup\u003e2\u003c\/sup\u003e 230\u003c\/p\u003e \u003cp\u003eValue of CDO\u003csup\u003e2\u003c\/sup\u003es Derives Broadly from Inner CDOs 232\u003c\/p\u003e \u003cp\u003eCDO\u003csup\u003e2\u003c\/sup\u003e versus Inner CDO 234\u003c\/p\u003e \u003cp\u003eLike Mezzanine, but with Tails 235\u003c\/p\u003e \u003cp\u003eCDO\u003csup\u003e2\u003c\/sup\u003e versus Master CDO 236\u003c\/p\u003e \u003cp\u003eEconomic Value versus Rating Quality 238\u003c\/p\u003e \u003cp\u003eUses of CDO\u003csup\u003e2\u003c\/sup\u003e: Long, Short, and Correlation! 239\u003c\/p\u003e \u003cp\u003eStructures: Good, Bad, and Ugly 239\u003c\/p\u003e \u003cp\u003eInner CDO Tranche Seniority and Thinness 240\u003c\/p\u003e \u003cp\u003eOverlap of Credits 242\u003c\/p\u003e \u003cp\u003eNonuniformity of Portfolios 243\u003c\/p\u003e \u003cp\u003eFungible and Tradable Subordination 244\u003c\/p\u003e \u003cp\u003eHow Managers Can Add Value 246\u003c\/p\u003e \u003cp\u003eNot Just Credit Selection 246\u003c\/p\u003e \u003cp\u003eManage to the Structure 248\u003c\/p\u003e \u003cp\u003eConclusion 249\u003c\/p\u003e \u003cp\u003eCase Study: Term Sheet 249\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 9 CPPI: Leveraging and Deleveraging Credit 253 \u003cbr\u003e\u003c\/b\u003e\u003ci\u003eOlivier Renault\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003eProduct Mechanics 253\u003c\/p\u003e \u003cp\u003eManaged CPPIs 256\u003c\/p\u003e \u003cp\u003eWhen Is CPPI Suitable? 257\u003c\/p\u003e \u003cp\u003eChoice of Trading Strategies 257\u003c\/p\u003e \u003cp\u003eCase Study: Performance Comparison of Strategies 258\u003c\/p\u003e \u003cp\u003eBaseline: Unlevered Strategies 258\u003c\/p\u003e \u003cp\u003eSimulations 258\u003c\/p\u003e \u003cp\u003eResults 259\u003c\/p\u003e \u003cp\u003ePerformance Comparison in CPPI Setup 263\u003c\/p\u003e \u003cp\u003eOther Strategies 264\u003c\/p\u003e \u003cp\u003eAppendix: Our Methodology 265\u003c\/p\u003e \u003cp\u003eOur Estimations and Simulations 265\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART THREE Collateralized Debt Obligations\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 10 Collateralized Loan Obligations 269 \u003cbr\u003e\u003c\/b\u003e\u003ci\u003eGlen McDermott, William E. Deitrick, Alexei Kroujiline, and Robert Mandery\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003eLeveraged Loan Market Overview 270\u003c\/p\u003e \u003cp\u003eStrong Primary Market Growth 270\u003c\/p\u003e \u003cp\u003eBroadening Investor Base 272\u003c\/p\u003e \u003cp\u003eIncreasing Secondary Market Liquidity 273\u003c\/p\u003e \u003cp\u003eContinuing Challenges to Loan Market Liquidity 275\u003c\/p\u003e \u003cp\u003eKey Loan Characteristics 276\u003c\/p\u003e \u003cp\u003eLoan Structures 281\u003c\/p\u003e \u003cp\u003eRevolving Credit Facilities 281\u003c\/p\u003e \u003cp\u003eAmortizing Term Loans 281\u003c\/p\u003e \u003cp\u003eInstitutional Term Loans 282\u003c\/p\u003e \u003cp\u003ePro Rata Loans 282\u003c\/p\u003e \u003cp\u003eOverview 282\u003c\/p\u003e \u003cp\u003eKey Characteristics 283\u003c\/p\u003e \u003cp\u003eInvestment Opportunities 284\u003c\/p\u003e \u003cp\u003eMiddle-Market Loans 285\u003c\/p\u003e \u003cp\u003eOverview 285\u003c\/p\u003e \u003cp\u003eKey Characteristics 285\u003c\/p\u003e \u003cp\u003eInvestment Opportunities 288\u003c\/p\u003e \u003cp\u003eEuropean Leveraged Loans 289\u003c\/p\u003e \u003cp\u003eOverview 289\u003c\/p\u003e \u003cp\u003eEuropean Mezzanine Bank Loans 290\u003c\/p\u003e \u003cp\u003eKey Characteristics 292\u003c\/p\u003e \u003cp\u003eInvestment Opportunities 292\u003c\/p\u003e \u003cp\u003eCollateralized Loan Obligations 293\u003c\/p\u003e \u003cp\u003eEfficient Access to Loan Market Investment\u003c\/p\u003e \u003cp\u003eOpportunities—Introducing CLOs 293\u003c\/p\u003e \u003cp\u003eBasic CLO Structure 293\u003c\/p\u003e \u003cp\u003eCLO Asset Manager 296\u003c\/p\u003e \u003cp\u003eCLO Market Today 297\u003c\/p\u003e \u003cp\u003eKey Drivers of CLO Outperformance 298\u003c\/p\u003e \u003cp\u003eConclusion 303\u003c\/p\u003e \u003cp\u003eMiddle-Market CLO Handbook 303\u003c\/p\u003e \u003cp\u003eMiddle-Market Size and Definition 304\u003c\/p\u003e \u003cp\u003eGrowing Investor Demand 305\u003c\/p\u003e \u003cp\u003eDominance of Institutional Term-Loan Debt 305\u003c\/p\u003e \u003cp\u003eSecond-Lien Loans Emerge 306\u003c\/p\u003e \u003cp\u003eInvestment Considerations for Middle-Market Investors 307\u003c\/p\u003e \u003cp\u003eLegal Considerations 312\u003c\/p\u003e \u003cp\u003eMiddle-Market CLOs 312\u003c\/p\u003e \u003cp\u003eCLO Investment Considerations 320\u003c\/p\u003e \u003cp\u003eConclusion 324\u003c\/p\u003e \u003cp\u003eAppendix A: Middle-Market Loan Characteristics 325\u003c\/p\u003e \u003cp\u003eFloating-Rate Coupon 325\u003c\/p\u003e \u003cp\u003eMaturity 325\u003c\/p\u003e \u003cp\u003eCallability 326\u003c\/p\u003e \u003cp\u003eCovenants 326\u003c\/p\u003e \u003cp\u003eStructure of a Middle-Market Loan 326\u003c\/p\u003e \u003cp\u003eAppendix B: The Basic CLO Structure 327\u003c\/p\u003e \u003cp\u003eCase Study: CDO Combination Securities—Tailoring Risk\/Return Profiles 329\u003c\/p\u003e \u003cp\u003eIntroduction 329\u003c\/p\u003e \u003cp\u003eEqually Rated CDO Combination Securities Are Not Equal 330\u003c\/p\u003e \u003cp\u003eValue in Baa3-Rated CLO Combination Securities 332\u003c\/p\u003e \u003cp\u003eConclusion 334\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 11 ABS CDOs 335 \u003cbr\u003e\u003c\/b\u003e\u003ci\u003eRatul Roy and Glen McDermott\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003eOverview of the Structured Finance Market 335\u003c\/p\u003e \u003cp\u003eBasic Structure 335\u003c\/p\u003e \u003cp\u003eRoles of Multiple Parties in a Securitization 336\u003c\/p\u003e \u003cp\u003eABS Market Fundamentals 336\u003c\/p\u003e \u003cp\u003eMajor Characteristics of Structured Finance Securities 344\u003c\/p\u003e \u003cp\u003eRelative Value 344\u003c\/p\u003e \u003cp\u003eStructural Protection 346\u003c\/p\u003e \u003cp\u003eCollateral Stability 346\u003c\/p\u003e \u003cp\u003eChallenges 348\u003c\/p\u003e \u003cp\u003eCDOs of Structured Finance Securities 350\u003c\/p\u003e \u003cp\u003eInvestor Motivation 350\u003c\/p\u003e \u003cp\u003eA Customized Investment 350\u003c\/p\u003e \u003cp\u003eRelative Value 351\u003c\/p\u003e \u003cp\u003eMajor Considerations in CDO Investing 351\u003c\/p\u003e \u003cp\u003eLeveraging Stability—Performance of SF CDOs 354\u003c\/p\u003e \u003cp\u003eCDOs of SFSs Take Many Forms 354\u003c\/p\u003e \u003cp\u003eConclusion 358\u003c\/p\u003e \u003cp\u003eCase Study: Relative Value in High-Grade Structured Finance CDOs 358\u003c\/p\u003e \u003cp\u003eTransaction Overview 359\u003c\/p\u003e \u003cp\u003eHigh-Grade SF Securities: A Strong Track Record 361\u003c\/p\u003e \u003cp\u003eCash Flow Analysis 363\u003c\/p\u003e \u003cp\u003eConclusion 364\u003c\/p\u003e \u003cp\u003eCase Study: Untangling Mezzanine and High-Grade Structured Finance CDOs 364\u003c\/p\u003e \u003cp\u003eCollateral Composition 365\u003c\/p\u003e \u003cp\u003eCollateral Risk 366\u003c\/p\u003e \u003cp\u003eExpected Loss 366\u003c\/p\u003e \u003cp\u003eCorrelation Views 368\u003c\/p\u003e \u003cp\u003eOther Differences 368\u003c\/p\u003e \u003cp\u003eConclusion 369\u003c\/p\u003e \u003cp\u003eAppendix: Rating Transition Matrices of Common\u003c\/p\u003e \u003cp\u003eStructured Finance Collateral 369\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 12 CDO Equity 371 \u003cbr\u003e\u003c\/b\u003e\u003ci\u003eGlen McDermott and Alexei Kroujiline\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003eCash Flow CDO Income Notes 373\u003c\/p\u003e \u003cp\u003eReturn Analysis 377\u003c\/p\u003e \u003cp\u003eDefaults 378\u003c\/p\u003e \u003cp\u003eRecoveries 380\u003c\/p\u003e \u003cp\u003eInterest Rate Risk 382\u003c\/p\u003e \u003cp\u003eCollateral Manager 384\u003c\/p\u003e \u003cp\u003eCollateral Manager Review 384\u003c\/p\u003e \u003cp\u003eAsset Selection 385\u003c\/p\u003e \u003cp\u003eCDO Investment Guidelines 386\u003c\/p\u003e \u003cp\u003eCDO Manager Types 388\u003c\/p\u003e \u003cp\u003eInvestment and Trading Philosophy 389\u003c\/p\u003e \u003cp\u003eAsset Characteristics 391\u003c\/p\u003e \u003cp\u003eCollateral Mix 391\u003c\/p\u003e \u003cp\u003eTime Stamp or Cohort 392\u003c\/p\u003e \u003cp\u003eDiversification 393\u003c\/p\u003e \u003cp\u003eStructure 394\u003c\/p\u003e \u003cp\u003eTrigger Levels 394\u003c\/p\u003e \u003cp\u003eSenior Costs, Swaps, and Caps 395\u003c\/p\u003e \u003cp\u003eManager Fees and Equity Ownership 396\u003c\/p\u003e \u003cp\u003eCredit-Improved Sales—Treatment of Premium 396\u003c\/p\u003e \u003cp\u003eConclusion 397\u003c\/p\u003e \u003cp\u003eCase Study: Diversifying Credit Risk Using a CDO Equity Fund 397\u003c\/p\u003e \u003cp\u003eIntroduction 397\u003c\/p\u003e \u003cp\u003eModeling Assumptions and Analytical Techniques 398\u003c\/p\u003e \u003cp\u003eResults 399\u003c\/p\u003e \u003cp\u003eConclusion 400\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 13 Commercial Real Estate CDOs 403 \u003cbr\u003e\u003c\/b\u003e\u003ci\u003eDarrell Wheeler and Ratul Roy\u003c\/i\u003e\u003c\/p\u003e \u003cp\u003eCRE CDOs by the Numbers 403\u003c\/p\u003e \u003cp\u003eSlow Start, but Growth Now Strong 403\u003c\/p\u003e \u003cp\u003eRelative Value: Spread Pickup Often Gives CRE CDOs an Edge 405\u003c\/p\u003e \u003cp\u003eCRE CDO Performance Has Been Strong 406\u003c\/p\u003e \u003cp\u003eCollateral Mix: Diverse and Evolving 407\u003c\/p\u003e \u003cp\u003eBuilding Blocks of a CRE CDO 409\u003c\/p\u003e \u003cp\u003eB-Notes and Rake Bonds 411\u003c\/p\u003e \u003cp\u003eSecond Lien Loans 412\u003c\/p\u003e \u003cp\u003eMezzanine Loans 412\u003c\/p\u003e \u003cp\u003ePreferred Equity 413\u003c\/p\u003e \u003cp\u003eWhole Loans 413\u003c\/p\u003e \u003cp\u003eCMBS First Loss Positions or B-Pieces 413\u003c\/p\u003e \u003cp\u003eCRE CDO Managers and Sponsors 415\u003c\/p\u003e \u003cp\u003eWho’s Who 415\u003c\/p\u003e \u003cp\u003eWhat to Look for in a CRE CDO Manager 415\u003c\/p\u003e \u003cp\u003eCRE CDO Investors: A Diverse Group 416\u003c\/p\u003e \u003cp\u003eKey Events in the CRE CDO Market 417\u003c\/p\u003e \u003cp\u003eA Market Is Born 417\u003c\/p\u003e \u003cp\u003eThe Rise of CRE CDOs as a Source of Financing 418\u003c\/p\u003e \u003cp\u003eThe Push for Flexibility 420\u003c\/p\u003e \u003cp\u003eThe Current State of the CRE CDO Market 421\u003c\/p\u003e \u003cp\u003eInvestor Analysis of CRE CDOs 422\u003c\/p\u003e \u003cp\u003eCRE CDO Analysis for Traditional\u003c\/p\u003e \u003cp\u003eCDO Investors 423\u003c\/p\u003e \u003cp\u003eCRE CDO Analysis for Traditional\u003c\/p\u003e \u003cp\u003eReal Estate Investors 423\u003c\/p\u003e \u003cp\u003eAdditional Suggested Collateral Analysis 428\u003c\/p\u003e \u003cp\u003eAnalysis of CMBS Certificates 428\u003c\/p\u003e \u003cp\u003eAnalysis of Uncertificated Securities 429\u003c\/p\u003e \u003cp\u003eAppendix: List of CRE CDOs 432\u003c\/p\u003e \u003cp\u003eGlossary 437\u003c\/p\u003e \u003cp\u003eTerm Sheet 439\u003c\/p\u003e \u003cp\u003eNotes 443\u003c\/p\u003e \u003cp\u003eIndex 457\u003c\/p\u003e","brand":"John Wiley \u0026 Sons 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