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As a sign of ambivalence in the regulatory definition of capital adequacy for credit risk and the quest for more efficient refinancing sources collateral loan obligations (CLOs) have become a prominent securitisation mechanism. This paper presents a loss-based asset pricing model for the valuation of constituent tranches within a CLO-style security design. The model specifically examines how tranche subordination translates securitised credit risk into investment risk of issued tranches as beneficial interests on a designated loan pool typically underlying a CLO transaction. We obtain a tranchespecific term structure from an intensity-based simulation of defaults under both robust statistical analysis and extreme value theory (EVT). Loss sharing between issuers and investors according to a simplified subordination mechanism allows issuers to decompose securitised credit risk exposures into a collection of default sensitive debt securities with divergent risk profiles and expected investor returns. Our estimation results suggest a dichotomous effect of loss cascading, with the default term structure of the most junior tranche of CLO transactions (“first loss position”) being distinctly different from that of the remaining, more senior “investor tranches”. The first loss position carries large expected loss (with high investor return) and low leverage, whereas all other tranches mainly suffer from loss volatility (unexpected loss). These findings might explain why issuers retain the most junior tranche as credit enhancement to attenuate asymmetric information between issuers and investors. At the same time, the issuer discretion in the configuration of loss subordination within particular security design might give rise to implicit investment risk in senior tranches in the event of systemic shocks. JEL Classifications: C15, C22, D82, F34, G13, G18, G20
A webinar series that was organised by the Academy of Pharmaceutical Sciences Biopharmaceutics focus group in 2021 focused on the challenges of developing clinically relevant dissolution specifications (CRDSs) for oral drug products. Industrial scientists, together with regulatory and academic scientists, came together through a series of six webinars, to discuss progress in the field, emerging trends, and areas for continued collaboration and harmonisation. Each webinar also hosted a Q&A session where participants could discuss the shared topic and information. Although it was clear from the presentations and Q&A sessions that we continue to make progress in the field of CRDSs and the utility/success of PBBM, there is also a need to continue the momentum and dialogue between the industry and regulators. Five key areas were identified which require further discussion and harmonisation.