Timeline for How does tranching cause leverage?
Current License: CC BY-SA 3.0
10 events
| when toggle format | what | by | license | comment | |
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| Sep 23, 2015 at 20:13 | vote | accept | AfterWorkGuinness | ||
| Sep 23, 2015 at 5:21 | answer | added | BAR | timeline score: 0 | |
| Sep 23, 2015 at 5:15 | answer | added | realizedvariance | timeline score: 2 | |
| Sep 23, 2015 at 5:09 | comment | added | BAR | Where did you read this? | |
| Sep 22, 2015 at 21:51 | comment | added | Ascorpio | Sry couldn't save final edit. This is correct link: Understanding the Risk of Synthetic CDOs . Althoght it's about CDOs, it should help with understanding leverage in general for synthetics. | |
| Sep 22, 2015 at 21:43 | comment | added | Ascorpio | Let's say that if the pool is 100 mil and equity is 10% = 10 min. Now if we assume that the expected loss on the pool is 5mil, loss on the pool level with be 5%, however, loss on the equity tranche level will be 50% because as most junior tranche it will be the first to absorb losses. This is at least my understanding of the leverage with regards to tranches in any synthetic instrument. You can also check following pdf from fed site as some background link | |
| Sep 22, 2015 at 21:28 | comment | added | AfterWorkGuinness | Can you explain further how those two circumstances could lead to leverage? | |
| Sep 22, 2015 at 21:00 | comment | added | Ascorpio | I am wondering what exactly do you mean by leverage in this situation. I can recall one is pure ratio of tranche size to pool size and the other is ratio of tranche delta to the delta of the underlying pool. I suppose that the CDO structure significantly affects both of them. If you treat equity tranche as the more junior one, stating that it is only 10% of the total pool then obviously it contains biggest risk. | |
| Sep 22, 2015 at 20:40 | history | edited | AfterWorkGuinness | CC BY-SA 3.0 |
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| Sep 22, 2015 at 19:03 | history | asked | AfterWorkGuinness | CC BY-SA 3.0 |