Profit and Risk under Subprime Mortgage Securitization | Zendy

Mitchell A. Petersen | Zendy; Janine Mukuddem-Petersen | Zendy; B. De Waal | Zendy; Mmamontsho Charlotte Senosi | Zendy; S. Thomas | Zendy

AI Assistant Blog Pricing

Home ZAIA Blog

Open Access

Profit and Risk under Subprime Mortgage Securitization

Author(s) -

Mitchell A. Petersen,

Janine Mukuddem-Petersen,

B. De Waal,

Mmamontsho Charlotte Senosi,

S. Thomas

Publication year - 2011

Publication title -

discrete dynamics in nature and society

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.264

H-Index - 39

eISSN - 1607-887X

pISSN - 1026-0226

DOI - 10.1155/2011/849342

Subject(s) - securitization , collateralized debt obligation , synthetic cdo , structured finance , business , mortgage underwriting , secondary mortgage market , credit risk , mortgage insurance , valuation (finance) , financial system , actuarial science , economics , finance , collateral , financial crisis , insurance policy , credit valuation adjustment , casualty insurance , credit reference , macroeconomics

We investigate the securitization of subprime residential mortgage loans into structuredproducts such as subprime residential mortgage-backed securities (RMBSs) and collateralizeddebt obligations (CDOs). Our deliberations focus on profit and risk in a discrete-time frameworkas they are related to RMBSs and RMBS CDOs. In this regard, profit is known to bean important indicator of financial health. With regard to risk, we discuss credit (includingcounterparty and default), market (including interest rate, price, and liquidity), operational (includinghouse appraisal, valuation, and compensation), tranching (including maturity mismatchand synthetic) and systemic (including maturity transformation) risks. Also, we consider certainaspects of Basel regulation when securitization is taken into account. The main hypothesis ofthis paper is that the SMC was mainly caused by the intricacy and design of subprime mortgagesecuritization that led to information (asymmetry, contagion, inefficiency, and loss) problems,valuation opaqueness and ineffective risk mitigation. The aforementioned hypothesis is verifiedin a theoretical- and numerical-quantitative context and is illustrated via several examples

The content you want is available to Zendy users.

Already have an account? Click here to sign in.

Having issues? You can contact us here

Accelerating Research