The study aims at analyzing the product and market functions of Asset-Backed Securities (ABS) by firstly, distinguishing characteristics of the product functions and market functions in relation to Asset-Backed Securitization within a general compass. The product functions the author refers to the phase prior to the issuing of securities, namely the structuring phase. Thus, the author will be drawing from history and developments in the market, players involved in the structuring process and descriptions of the basic product functions. Secondly, the author will elaborate on the market functions; the phase subsequent to the product being implemented into the market. Furthermore the author strives to give the reader a clear definition of the types of asset-backed securities and their functions within the market framework. Thirdly, the author will elaborate on the shortfalls in the ABS structure with relation to it's risk and continue to discuss the risks attributable to the product and market functions of ABS. Finally, the author will submit solutions for the featured risks within the framework and draw an outline as to the ABS securitization market in the future.
Chapter 1: distinguishes characteristics of the product functions of Asset Backed Securitization, by explaining the key definitions associated with initiating the product phase. Initially the history and development of the ABS market will be unraveled; thereafter the author continues to describe the structure of the ABS process, explained by describing the role played by the key players in the process. Conclusively, the author exemplifies the two main concepts of securitization's product sphere namely, True sale/Conventional and Synthetic Securitization
Chapter 2: distinguishes characteristics of the Market functions of Asset Backed Securitization, by explaining the different types of ABS also by giving a short description of each type of asset backed securities, namely, ABS, MBS, and CDO. Furthermore, the author exemplifies the development of the market for ABS. Conclusively; the relevance of credit derivatives in the ABS market is unraveled. The author included examples of the varied asset-backed products traded in the market after comprehensively defining the functions of the product and market businesses. In the final phase of the paper, the author outlines the current financial crisis in relation to ABS and endures to highlight the risks associated with asset backed structures from a product and market perspective. The author continues to elaborate on his personal suggestions for mitigating these risks and concludes with the future prospects of the ABS market, after taking into consideration the risks and proposed solutions.
Inhaltsverzeichnis
1;Asset-backed Securitization and the Financial Crisis;1 2;Table of Contents;3 3;Outline;5 4;Table of Figures;6 5;List of Tables;7 6;List of abbreviations;7 7;Abstract;9 8;Introduction;10 9;Chapter 1: Initiating the product and market functions of ABS;13 9.1;1.1 History and Development of the Asset-Backed Securities Market;13 9.2;1.2 Asset- Backed Securitization in a Nutshell;15 9.3;1.3 Issuing vehicles;16 9.4;1.4 The Structuring Process;17 9.5;1.4.1 True-Sale /Conventional Securitization;17 9.6;1.4.2 Synthetic Securitization;19 9.7;1.5 Framework of an Asset-Backed Security;20 9.7.1;1.5.1 Asset Tranches;20 9.8;1.6 Key Players in Asset Backed Securitization;21 9.8.1;1.6.1 The relationship between the Originator-SPV;21 9.8.2;1.6.2 The relationship between SPV- Investors;23 9.8.3;1.6.3 The relationship between SPV-Trustee;23 9.8.4;1.6.4 The relationship between between SPV-Credit Enhancer;24 9.8.5;1.6.5 The relationship between SPV- Rating Agencies;25 9.9;1.7 Legal formalities and the Risk Isolation;25 10;Chapter 2: Initiating the Market Functions of ABS;26 10.1;2.1 Trading Asset Backed Securities;26 10.2;2.2 Types of Asset Backed Securities;27 10.3;2.3 Mortgage-Backed Securities (MBS);28 10.3.1;2.3.3 Pricing Mortgage-Backed Securities;29 10.3.2;2.3.4 Market Developments of MBS;30 10.4;2.4 Asset-Backed Securities (ABS) in a narrower sense;30 10.4.1;2.4.1 Market Develop for ABS (in a narrower sense);31 10.4.2;2.4.2 Pricing Asset Backed Securities;32 10.5;2.5 Collateral Debt Obligations (CDO);32 10.5.1;2.5.1 Market Development of CDOs;32 10.5.2;2.5.2 True Sale CDO;33 10.5.3;2.5.3 Synthetic CDO;35 10.6;2.6 Importance of Credit Derivatives in Asset Securitization;36 11;Chapter 3: Risks and Solutions;37 11.1;3.1 Financial Meltdown 2008;37 11.1.1;3.1.1 The subprime crisis;38 11.1.2;3.1.2 The Rescuing Debacle;38 11.1.3;3.1.3 The Global Crisis;39 11.2;3.2 Importance of Risk Management;40 11.3;3.3 Risk in the Asset Backed Securities market; an accelerating force in the financia
l crisis;41 11.3.1;3.3.1 Internal Control Risk and Management;41 11.3.2;3.3.2 Accounting and transfer risk;43 11.3.3;3.2.3 Excess liquidity risk;45 11.3.4;3.3.4 Counterparty risk-;47 11.4;3.4 Risks associated with the Market;48 11.4.1;3.4.1 Concentrated risk;48 11.4.2;3.4.2 Transparency risk of (OTC) trades;49 11.4.3;3.4.3 Inaccurate Pricing Risk and Rating Agencies;51 12;4. Conclusion;54 13;5. Bibliography;57 14;Appendix;62
