default risk for a single obligor is not the cause of the complexity. The complexity in a CDO is securitization, credit risk transfer, and the structuring (tranching) of risk. It is not trivial to value/understand a tranched security that has dependence (attachment/detachments) to other pooled obligors and where you have layers of abstration.
As for the 2 nuanced problems: Why does „basis risk“ and the fall in value of the Super Senior tranche affect anything in this „synthetic“ environment? Don't the premiums from the Super Senior protection seller just go on like normal? Or are they in some way reduced?
default risk for a single obligor is not the cause of the complexity. The complexity in a CDO is securitization, credit risk transfer, and the structuring (tranching) of risk. It is not trivial to value/understand a tranched security that has dependence (attachment/detachments) to other pooled obligors and where you have layers of abstration.
As for the 2 nuanced problems: Why does „basis risk“ and the fall in value of the Super Senior tranche affect anything in this „synthetic“ environment? Don't the premiums from the Super Senior protection seller just go on like normal? Or are they in some way reduced?
Hello David - What software are you using to record your presentations?
Very well put together.
Thanks in advance
Fantastic. Well done.
The more complicated something is the more risky. Just buy Bitcoin and hodl!
salman khan should do these so they are even better understood