I think there is an error in the Meissner text - Correlation Risk Modeling and Management and can't find an errata for this text to verify.
On page 19 the foot note reads:
- Shorting the equity tranche means being short credit protection or selling credit protection, which means receiving the (high) equity tranche contract spread
In the context, he is talking about CDOs, which makes me think this is incorrect. In a CDO, doesn't being short a tranche buy credit protection and investing in the tranche (long) is to sell credit protection?
When you invest in one of the tranches of a CDO, you are exposed to credit risk which is why you are compensated by a spread right ?