TY  - UNPD
A1  - Krahnen, Jan Pieter
A1  - Wilde, Christian
T1  - CDOs and systematic risk : why bond ratings are inadequate
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2009,11
N2  - This paper analyzes the risk properties of typical asset-backed securities (ABS), like CDOs or MBS, relying on a model with both macroeconomic and idiosyncratic components. The examined properties include expected loss, loss given default, and macro factor dependencies. Using a two-dimensional loss decomposition as a new metric, the risk properties of individual ABS tranches can directly be compared to those of corporate bonds, within and across rating classes. By applying Monte Carlo Simulation, we find that the risk properties of ABS differ significantly and systematically from those of straight bonds with the same rating. In particular, loss given default, the sensitivities to macroeconomic risk, and model risk differ greatly between instruments. Our findings have implications for understanding the credit crisis and for policy making. On an economic level, our analysis suggests a new explanation for the observed rating inflation in structured finance markets during the pre-crisis period 2004-2007. On a policy level, our findings call for a termination of the 'one-size-fits-all' approach to the rating methodology for fixed income instruments, requiring an own rating methodology for structured finance instruments. JEL Classification: G21, G28
T3  - CFS working paper series - 2009, 11 
KW  - credit risk
KW  - risk transfer
KW  - systematic risk
KW  - Bank
KW  - Risikoverteilung
KW  - Schuldverschreibung
Y1  - 2009
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/6665
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30-67240
IS  - Version June 24, 2009
ER  -