Details

Securitisation Swaps


Securitisation Swaps

A Practitioner's Handbook
Wiley Finance 1. Aufl.

von: Mark Aarons, Vlad Ender, Andrew Wilkinson

61,99 €

Verlag: Wiley
Format: EPUB
Veröffentl.: 16.01.2019
ISBN/EAN: 9781119532347
Sprache: englisch
Anzahl Seiten: 232

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Beschreibungen

<p><b>Develop the skillset essential to successful securitisation swaps management</b></p> <p><i>Securitisation Swaps </i>is a complete practitioner’s guide to this unique and complex class of derivatives. This detailed examination follows the entire life cycle of securitisation swaps to give quants, structurers, traders, originators, issuers and lawyers a common reference for understanding their shared objective. Broad in scope to provide a common-ground perspective — yet detailed enough to promote full understanding — the discussion takes a distinctly cross-disciplinary approach that encompasses the multi-faceted knowledge base required to successfully execute these complex trades.</p> <p>Despite the fact that the size of the market is trillions of dollars in notional principal, securitisation swaps have thus far been neglected in both academic and practitioner literature. The numerous stakeholders that work together on these complex deals will all greatly benefit from a thorough understanding of their underlying risks and gain deep insight into the perspectives of each stakeholder. This invaluable guide provides multi-disciplinary insight that allows practitioners to:</p> <ul> <li>Manage securitisation swaps more effectively, from pre-trade structuring and modelling to post-trade risk management and accounting</li> <li>Understand the elements of securitisation and covered bonds, and how swaps mitigate risk in these types of transactions</li> <li>Explore how securitisation swaps differ from other derivatives and delve into their three specific risk factors — swap prepayment risk, swap extension risk and downgrade risk</li> <li>Learn practical methods and strategies of risk management, accounting, pricing and transaction execution</li> </ul> <p>When securitisation trades go wrong, they become front-page news — but when each participant understands accurate modelling, risk mitigation, optimal structuring, costs, pricing, commercial backgrounds and other integral practices, they are able to work together to achieve a shared objective. <i>Securitisation Swaps</i> provides the essential knowledge that streamlines and safeguards these important trades.</p>
<p>About the Author xiii</p> <p>Foreword xv</p> <p>Acknowledgements xix</p> <p><b>Chapter 1</b></p> <p>Introduction 1</p> <p><b>Chapter 2</b></p> <p>Overview of Structured Funding 5</p> <p>Funding 5</p> <p>Funding Instruments 7</p> <p>Securitisation 8</p> <p>The Securitisation Process 8</p> <p>Structured Funding Participants 9</p> <p>Asset and Cash Flow Transformation 16</p> <p>Summary of Securitisation 18</p> <p>Master Trusts 18</p> <p>Securitisation and the GFC 21</p> <p>Covered Bonds 22</p> <p>Documentary Framework 24</p> <p>Offer Document 24</p> <p>Subscription Agreement 25</p> <p>Sale Agreement 25</p> <p>Trust Documentation 25</p> <p>Servicing Agreement 27</p> <p>Swaps 27</p> <p>Ancillary Service Provider Documentation 28</p> <p>Structured Funding Markets 31</p> <p>Risks 32</p> <p>Credit Risk 32</p> <p>Market Risk 32</p> <p>Liquidity Risk 33</p> <p>Prepayment Risk 33</p> <p>Extension Risk 34</p> <p>Downgrade Risk 34</p> <p>Operational Risk 35</p> <p>Legal Risk 35</p> <p><b>Chapter 3</b></p> <p>Asset-Backed Debt Structures 37</p> <p>Loan Pool Dynamics 37</p> <p>Derivation of Eq. (3.1) 38</p> <p>Pool Amortisation 42</p> <p>Securitisation Structures 42</p> <p>Standalone Structures with Pass-Through Tranches 42</p> <p>Standalone Structures with Bullet Tranches 47</p> <p>Standalone Structures with Controlled Amortisation Tranches 48</p> <p>Tranche Conservation Laws 49</p> <p>Master Trust RMBS Structures 50</p> <p>Credit Card ABS Structures 55</p> <p>Covered Bond Structures 57</p> <p>Hard Bullets 57</p> <p>Extendible Maturity Structures 58</p> <p>Comparison of Structures 59</p> <p><b>Chapter 4</b></p> <p>Swaps in Structured Funding 61</p> <p>An Overview of Vanilla Swaps 61</p> <p>Interest Rate Swaps 61</p> <p>Cross-Currency Swaps 64</p> <p>Vanilla Swap Pricing 66</p> <p>Asset Swaps 68</p> <p>Liability Swaps 70</p> <p>Standby Swaps 72</p> <p>Swap Priority and Flip Clauses 74</p> <p><b>Chapter 5</b></p> <p>Swap Prepayment Risk 79</p> <p>What is Swap Prepayment Risk? 79</p> <p>The Expected Swap Schedule 80</p> <p>Balance Guarantee Swaps 83</p> <p>Re-Hedging 84</p> <p>What Factors Drive Prepayment Rates? 90</p> <p>Monte Carlo Modelling of Swap Prepayment Risk 91</p> <p>Working with a Mixed Measure 92</p> <p>Modelling Prepayment 93</p> <p>Modelling the Market Risk Factors 96</p> <p>Simulation Methodology 97</p> <p>Greeks, Hedging and VaR 103</p> <p>Computing Greeks 103</p> <p>Hedging 104</p> <p>Value-at-Risk 106</p> <p>XVA 108</p> <p>Computing XVA for Swaps with Prepayment Risk 108</p> <p>Intermediated Asset Swaps 109</p> <p>Mitigation Strategies 110</p> <p>Risk Transfer 110</p> <p>Controlled Amortisation Structures 111</p> <p>Reducing Prepayment Volatility via Diversification 112</p> <p>Due Diligence and Surveillance 114</p> <p>Duty of Continuous Disclosure 115</p> <p>Step-Ups 116</p> <p>System Issues and Whole-of-Life Deal Management 116</p> <p>Trade Capture 116</p> <p>Trade Maintenance 117</p> <p>Risk Systems 118</p> <p><b>Chapter 6</b></p> <p>Swap Extension Risk 119</p> <p>What is Swap Extension Risk? 119</p> <p>Examples of Extension Risk 121</p> <p>Dependence on the Capital Structure: Standalone SPVs 126</p> <p>Extension Risk in UK RMBS Master Trusts 127</p> <p>Covered Bond Extension Risk 127</p> <p>A Simple Pricing Framework for 1-Factor Stochastic FX 128</p> <p>Full Pricing Framework in a Multi-Factor Setting 132</p> <p>Mitigation Strategies 133</p> <p>Pre-Trade Structuring versus Real-Time Hedging 133</p> <p>Pre-Trade Structuring 135</p> <p>Real-Time Hedging 138</p> <p>Stress Testing 139</p> <p><b>Chapter 7</b></p> <p>Downgrade Risk 141</p> <p>Rating Agency Criteria 142</p> <p>Criteria Specifics 144</p> <p>Examples 146</p> <p>Legal Aspects 149</p> <p>Updates of Counterparty Criteria 151</p> <p>Trade Capture and System Challenges 153</p> <p>The Competitive Landscape for Third-Party Swap Providers 155</p> <p>Basel III and the Liquidity Coverage Ratio 157</p> <p>Liquidity Transfer Pricing 159</p> <p>Constructing the LTP Curve 161</p> <p>Updating the LTP Curve 162</p> <p>Contingent Funding Valuation Adjustment 162</p> <p>What Is CFVA? 162</p> <p>Costs and Probabilities 163</p> <p>The CFVA Calculation 165</p> <p>Revaluation and Hedging 170</p> <p>Risk Limits 171</p> <p>Tenor 172</p> <p>Currency 172</p> <p>Purpose 172</p> <p>Mitigation Strategies 172</p> <p>Choice of Rating Agencies 173</p> <p>Contractual Protections 174</p> <p>Optimum Implementation of Counterparty Criteria 174</p> <p>Risk Transfer 176</p> <p>Collateralisation from Day One 176</p> <p>Replacement Risk 177</p> <p>Replacement of the Swap Provider 178</p> <p>Third-Party Guarantors 178</p> <p>Restructuring 179</p> <p>Mitigants 179</p> <p><b>Chapter 8</b></p> <p>Deal Management 181</p> <p>Pricing 181</p> <p>The Total Swap Cost 181</p> <p>Pricing Transparency 183</p> <p>Execution Charges 184</p> <p>Deal Checklist for Swap Providers 185</p> <p>Closing the Deal 186</p> <p>The Pricing Call 186</p> <p>Executing the Documents 187</p> <p>Covered Bond Coupon Rounding 187</p> <p>Market Risk Management 188</p> <p>Measurement 189</p> <p>Monitoring 189</p> <p>Governance and Risk Limits 189</p> <p>Inform and Act 190</p> <p>Future Regulation 193</p> <p>Accounting 194</p> <p>Fair Value 194</p> <p>Revenue Reserves 196</p> <p>Fair Value Hierarchy of Valuation Inputs 197</p> <p>Glossary 199</p> <p>References 201</p> <p>Index 203</p>
<p><b>MARK AARONS</b> is Head of Investment Risk at a leading Australian funds manager and an Adjunct Associate Professor in the Centre for Quantitative Finance and Investment Strategies at Monash University. Previously he was Head of FICC Structuring at the National Australia Bank, where he built a leading securitisation swap business in both Australia and the UK. <p><b>VLAD ENDER</b> is a director at Kauri Solutions, a financial markets consulting practice. Prior to founding Kauri Solutions, he spent eight years at National Australia Bank's London office. He also served as an Executive Director in the FICC Structuring team. <p><b>ANDREW WILKINSON</b> is a senior legal counsel in Australia who specialises in bespoke derivatives and securitisation. Previously, Andrew spent a decade in London working through the financial crisis and beyond for leading law firms Linklaters LLP and Weil, Gotshal & Manges.
<p>Praise for <p><b>Securitisation Swaps</b> <p>"A timely and succinctly written handbook catering to all structured finance practitioners in any capacity. The authors are ambitious in their coverage of all stages in the lifecycle of securitisation swaps and their management. I highly commend this guide which helps to dispel the complexity underlying these instruments, providing practical guidance and strategies that practitioners can utilise every day."</br> <b>—Jamie Ng, Global Head of Finance, Funds and Restructuring, Ashurst</b> <p>"Securitisation swaps are a critical, yet neglected area of finance markets. Mark, Vlad and Andrew have made a clear, much needed addition to the literature, from an introduction to the basics, through to a detailed discussion of all the key risks and how a transaction is put together from start to finish."</br> <b>—Rohan Douglas, CEO, Quantifi, London</b> <p>"Mark, Vlad and Andrew have done an outstanding job in the quality and breadth of content and its sheer accessibility."</br> <b>—Chauncy Stark, Former General Manager, FX and Cross Asset Trading, National Australia Bank</b> <p><b>An Essential Guide to Understanding the Complexities of Securitisation Swaps</b> <p>Written by noted experts on the topic, <i>Securitisation Swaps</i> offers an authoritative yet practical guide to understanding and managing the life cycle of securitisation swaps. The handbook examines every step of the cycle from pre-trade structuring and modeling to transaction management through post-trade risk management and accounting. <p><i>Securitisation Swaps</i> explains how securitisation swaps are priced, what risks they carry and how the price and risk vary across the myriad structuring options. The handbook provides an introduction to the key elements of securitisation and covered bonds and explores how derivatives fit in this space. In general terms, the authors reveal the risk that derivatives mitigate in these transactions. <p>Since securitisation swaps incorporate new risks and complexity into structured funding transactions, the book details how securitisation derivatives are different from other derivatives. It explores in depth the three specific risk factors which set them apart: prepayment risk, extension risk and downgrade risk. <p>The handbook offers all the stakeholders working on a deal (quants, structurers, traders, originators, lawyers and risk professionals) a detailed explanation of the deal lifecycle and contains practical suggestions on risk management, accounting, pricing and transaction execution specifics.

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