Thursday, August 23, 2007

Riskiest debt investments

Books of Account
Handbook of Debt Securities and Interest Rate Derivatives
A.V. Rajwade


With the sub-prime crisis continuing to wreak havoc in the financial world, lay readers have been pushed into learning many new words and terms. Such as, CDO (collateralised debt obligation). CDO transactions have become ‘increasingly complex’ in recent years, writes A.V. Rajwade in Handbook of Debt Securities and Interest Rate Derivatives (http://www.tatamcgrawhill.com/).

“In their simplest version, the credit risk on a portfolio transaction is typically divided into at least three tranches, each carrying a different level of credit risk and hence coupon,” he explains.

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