CHAPTER 6
Use of Interest Rate Derivatives in Securitization Transactions
In this chapter, we explain the use of interest rate derivatives in securitization transactions for hedging and yield enhancement. Three types of over-the-counter interest rate derivatives commonly used in securitizations are interest rate swaps, interest rate caps, and interest rate corridors. Because they are over-the-counter instruments, they expose the trust (the special-purpose vehicle (SPV)) to counterparty risk.
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