Developments in Collateralized Debt Obligations: New Products and Insights (Frank J. Fabozzi Series) [Hardcover]

Douglas J. Lucas (Author), Laurie S. Goodman (Author), Frank J. Fabozzi CFA (Author), Rebecca Manning (Author)

Book Description

Series: Frank J. Fabozzi Series | Publication Date: May 4, 2007

Developments In Collateralized Debt Obligations

The fastest growing sector of the fixed income market is the market for collateralized debt obligations (CDOs). Fostered by the development of credit default swaps (CDS) on all types of indexes of corporate bonds, emerging market bonds, commercial loans, and structured products, new products are being introduced into this market with incredible speed.

In order to keep up with this dynamic market and its various instruments, you need a guide that provides you with the most up-to-date information available. That's why Douglas Lucas, Laurie Goodman, Frank Fabozzi, and Rebecca Manning have created Developments in Collateralized Debt Obligations.

Filled with in-depth insights regarding new products, like hybrid assets in ABS CDOs and trust preferred CDOs, and detailed discussions on important issues-such as the impact of CDOs on underlying collateral markets-this book will bring you completely up to speed on essential developments in this field.

Written in a straightforward and accessible style, Developments in Collateralized Debt Obligations will enhance your understanding of this ever-evolving market-and its numerous products.

Editorial Reviews

From the Inside Flap

Anyone familiar with collateralized debt obligations (CDOs) knows that change and innovation within the CDO market are increasing at a rapid rate—and will probably continue to do so for the foreseeable future. In order to keep up with this dynamic market and its various instruments, you need a guide that provides you with the most up-to-date information available. That's why Douglas Lucas, Laurie Goodman, Frank Fabozzi, and Rebecca Manning have collaborated to bring you Developments in Collateralized Debt Obligations.

Written in a clear and accessible style, this detailed follow-up to Collateralized Debt Obligations, Second Edition contains the latest insights regarding the evolving nature of the CDO market. In fact, a major?ity of the chapters in this book couldn't have been written one year ago, as their subjects simply did not exist.

Divided into four comprehensive parts, Developments in Collateralized Debt Obligations opens with an introductory section (Part One) that outlines the essential aspects of CDOs as well as the entire CDO market. Here, special attention is paid to the cash flow credit structure, credit rating agencies' methodologies, interest rate hedging, and CDO call features. After this brief review, you'll quickly move on to discover a wide range of new issues in this field through Part Two: Developments in Synthetic CDOs, Part Three: Emerging CDO Products, and Part Four: Other CDO Topics. Information addressed within these parts of the book includes:

• The use of both cash and synthetic assets in the same CDO's collateral portfolio

• A comparison of subprime mortgage collateral in cash, credit default swap, and index forms

• An explanation of credit default swaps referencing CDOs

• CDO ratings and rating methodology changes made in 2006

• The growing influence CDOs have upon their underlying collateral markets

• Trust preferred securities issued by banks, insurance companies, and REITs

• Commercial real estate and commercial real estate CDOs

Whether you're an investment manager or institutional investor, understanding CDOs and handling their inherent complexities is more important than ever before. With Developments in Collateralized Debt Obligations as your guide, you'll learn how to navigate this dynamic market and take advantage of the many opportunities its products have to offer.

From the Back Cover

Developments In Collateralized Debt Obligations

The fastest growing sector of the fixed income market is the market for collateralized debt obligations (CDOs). Fostered by the development of credit default swaps (CDS) on all types of indexes of corporate bonds, emerging market bonds, commercial loans, and structured products, new products are being introduced into this market with incredible speed.

In order to keep up with this dynamic market and its various instruments, you need a guide that provides you with the most up-to-date information available. That's why Douglas Lucas, Laurie Goodman, Frank Fabozzi, and Rebecca Manning have created Developments in Collateralized Debt Obligations.

Filled with in-depth insights regarding new products, like hybrid assets in ABS CDOs and trust preferred CDOs, and detailed discussions on important issues—such as the impact of CDOs on underlying collateral markets—this book will bring you completely up to speed on essential developments in this field.

Written in a straightforward and accessible style, Developments in Collateralized Debt Obligations will enhance your understanding of this ever-evolving market—and its numerous products.

See all Editorial Reviews

Product Details

• Hardcover: 287 pages
• Publisher: Wiley; 1 edition (May 4, 2007)
• Language: English
• ISBN-10: 0470135549
• ISBN-13: 978-0470135549
• Product Dimensions: 6.4 x 1.1 x 9.5 inches
• Shipping Weight: 13.6 ounces (View shipping rates and policies)
• Average Customer Review: 3.5 out of 5 stars  See all reviews (2 customer reviews)
• Amazon Best Sellers Rank: #1,559,652 in Books (See Top 100 in Books)

Customer Reviews

Most Helpful Customer Reviews

4 of 5 people found the following review helpful:

3.0 out of 5 stars too optimistic, September 29, 2007

By 

W Boudville (Terra, Sol 3) - See all my reviews
(VINE VOICE)    (TOP 1000 REVIEWER)    (HALL OF FAME REVIEWER)    (REAL NAME)   

This review is from: Developments in Collateralized Debt Obligations: New Products and Insights (Frank J. Fabozzi Series) (Hardcover)

The aggregation of various types of debt (credit card, mortgage etc) and the subsequent creation of tranches of obligations is the subject of the book.

Here, the real estate origination of debt is not restricted to residential instances. One chapter describes how instruments can also be made out of commercial real estate. Intrinsically similar. Though of course the risk profiles can be expected to differ from a batch of homeowners.

Speaking of risk, the book has in several places extensive discussions of risk. As in the possibility of downgrades of CDOs, including the severity of these downgrades. An optimistic note is struck by "Market value CDOs really should never be downgraded." That particular section of the text goes on to explain why. In retrospect, though the book was written just a few months ago, it was far too optimistic. The downgraded examples were perhaps simply too early. As we go into 2008, there is every expectation that further deterioration will occur in many CDO fields.

Maybe one should not fault the authors (too much). When they wrote this book, the analysis was plausible based on the actual performances of CDOs to date. It is just that these performances were too skimpy in duration.

But there is a deeper problem with the book. In all the to do about how CDOs can spread risk, there is no deep questioning whether the process by which they were made created new risk in the first place. The companies (banks and mortgage firms) that made CDOs now had less incentive to scrutinise the borrowers' ability to repay. Because the typical case was that the CDOs were then sold to other parties, who then bore most or all of the risk. While the originators plucked lucrative fees for their roles. All the more so if some of the originators were not the firms that made the initial loans to borrowers, but financial firms that devised the CDO structures.

1 of 1 people found the following review helpful:

4.0 out of 5 stars Optimistic?, February 16, 2008

By 

Douglas Lucas "Douglas Lucas" (New York) - See all my reviews

This review is from: Developments in Collateralized Debt Obligations: New Products and Insights (Frank J. Fabozzi Series) (Hardcover)

This is one of the authors of the book, called "optimistic" by one of its reviewers. I'd like to thank that reviewer for taking the time to make many thoughtful comments.

I'd also like to clarify that the specific example of over optimism given by the reviewer is not the best. The comment that market value CDOs should never be downgraded was about the way those CDOs should be structured, i.e., to immediately go into liquidation and pay off their debt holders when they get into problems. The comment was a criticism of how recent market value CDOs have been structured to dawdle over liquidation and potentially deteriorate further.

A better example of optimism in the book is a comment about the benefit of credit default swaps on subprime mortgage bonds which allegedly "allows ABS CDO managers to be more selective about credits and focus more intently on collateral attributes and originator and servicer quality."

Ouch.

Hopefully the rest of the book is useful to people wanting to understand the structure and attributes of these instruments.

Douglas Lucas

PS. It seems I couldn't write a comment without awarding the book 1-5 stars. I tried to be objective.