Introduction to Structured Finance

Contents

Preface

About the Authors

CHAPTER 1

Introduction

Definition of Structured Finance

Other Definitions of Structured Finance

Case Study: How Enron Has Affected the Boundaries of Structured Finance

Conclusions

CHAPTER 2

Interest Rate Derivatives

Interest Rate Forward and Futures Contracts

Futures Contracts

Interest Rate Swaps

Options

Caps and Floors

CHAPTER 3

Credit Derivatives

Documentation and Credit Derivative Terms

Credit Default Swaps

Credit Default Swap Index

Basket Default Swaps

Asset Swaps

Total Return Swaps

Economics of a Total Return Swap

CHAPTER 4

Basic Principles of Securitization

What Is a Securitized Transaction?

Illustration of a Securitization

Reasons Why Entities Securitize Assets

Benefits of Securitization to Investors

What Rating Agencies Look at in Rating Asset-Backed Securities

Description of the Collateral

Prepayments Measures

Defaults and Delinquencies

CHAPTER 5

Securitization Structures

Use of Interest Rate Derivatives in Securitization Transactions

Credit Enhancement

More Detailed Illustration of a Securitization

CHAPTER 6

Cash Flow Collateralized Debt Obligations

Family of CDOs

Basic Structure of a Cash Flow CDO

CDOs and Sponsor Motivation

Compliance Tests

CHAPTER 7

Synthetic Collateralized Debt Obligation Structures

Motivations for Synthetic CDOs

Mechanics

Funding Mechanics

Investor Risks in Synthetic Transactions

Variations in Synthetic CDOs

The Single-Tranche Synthetic CDO

Summary of the Advantages of Synthetic Structures

Factors to Consider in ...