July 2008
Beginner
384 pages
9h 52m
English
Content preview from Introduction to Securitization
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.
KEY POINTS OF THE CHAPTER
• The types of OTC interest rate derivatives commonly used in securitizations are interest rate swaps, interest rate caps, and interest rate corridors.
• OTC derivatives expose the SPV to counterparty risk.
• In an interest rate swap, the two counterparties agree to exchange periodic interest payments based on some notional amount and some reference rate (typically LIBOR).
• An interest rate swap allows an SPV to transform the nature of the SPV’s cash flows and interest rate exposure.
• There are two economic interpretations of an interest rate swap: (1) a package of forward/futures contracts and (2) a package of cash flows from buying and selling cash market instruments.
• There are different types of swaps that are used in securitization transactions: (1) plain vanilla swap, (2) amortizing swap, and (3) basis swap.
• In a plain vanilla swap the notional principal remains unchanged during the life of the swap with one party paying a fixed rate and the other party a floating rate based on a reference rate.
• In an amortizing swap the notional amount declines over time based on either a predetermined amortization schedule, actual collateral balance, or the actual bond balance
• In a basis swap both parties pay a floating rate based on different reference rates.
• An interest rate swap is used in securitization transactions to alter the cash flow characteristics of the assets (liabilities) to match the characteristics of the liabilities (assets).
•
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Read now
Unlock full access
More than 5,000 organizations count on O’Reilly
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.Julian F.
I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.Addison B.
I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.Amir M.
I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.