Profit and Risk under Subprime Mortgage Securitization
We investigate the securitization of subprime residential mortgage loans into structured products such as subprime residential mortgage-backed securities (RMBSs) and collateralized debt obligations (CDOs). Our deliberations focus on profit and risk in a discrete-time framework as they are related to...
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| Main Authors: | , , , , |
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| Format: | Article |
| Language: | English |
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Wiley
2011-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2011/849342 |
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| author | M. A. Petersen J. Mukuddem-Petersen B. De Waal M. C. Senosi S. Thomas |
| author_facet | M. A. Petersen J. Mukuddem-Petersen B. De Waal M. C. Senosi S. Thomas |
| author_sort | M. A. Petersen |
| collection | DOAJ |
| description | We investigate the securitization of subprime residential mortgage loans into structured
products such as subprime residential mortgage-backed securities (RMBSs) and collateralized
debt obligations (CDOs). Our deliberations focus on profit and risk in a discrete-time framework
as they are related to RMBSs and RMBS CDOs. In this regard, profit is known to be
an important indicator of financial health. With regard to risk, we discuss credit (including
counterparty and default), market (including interest rate, price, and liquidity), operational (including
house appraisal, valuation, and compensation), tranching (including maturity mismatch
and synthetic) and systemic (including maturity transformation) risks. Also, we consider certain
aspects of Basel regulation when securitization is taken into account. The main hypothesis of
this paper is that the SMC was mainly caused by the intricacy and design of subprime mortgage
securitization that led to information (asymmetry, contagion, inefficiency, and loss) problems,
valuation opaqueness and ineffective risk mitigation. The aforementioned hypothesis is verified
in a theoretical- and numerical-quantitative context and is illustrated via several examples. |
| format | Article |
| id | doaj-art-fa9676e851b54e65873f8c17ee0a1ee9 |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2011-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-fa9676e851b54e65873f8c17ee0a1ee92025-02-03T06:07:07ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2011-01-01201110.1155/2011/849342849342Profit and Risk under Subprime Mortgage SecuritizationM. A. Petersen0J. Mukuddem-Petersen1B. De Waal2M. C. Senosi3S. Thomas4Faculty of Commerce and Administration, North-West University (Mafikeng Campus), Private Bag X2046, Mmabatho 2735, South AfricaFaculty of Commerce and Administration, North-West University (Mafikeng Campus), Private Bag X2046, Mmabatho 2735, South AfricaFaculty of Commerce and Administration, North-West University (Mafikeng Campus), Private Bag X2046, Mmabatho 2735, South AfricaFaculty of Commerce and Administration, North-West University (Mafikeng Campus), Private Bag X2046, Mmabatho 2735, South AfricaFaculty of Commerce and Administration, North-West University (Mafikeng Campus), Private Bag X2046, Mmabatho 2735, South AfricaWe investigate the securitization of subprime residential mortgage loans into structured products such as subprime residential mortgage-backed securities (RMBSs) and collateralized debt obligations (CDOs). Our deliberations focus on profit and risk in a discrete-time framework as they are related to RMBSs and RMBS CDOs. In this regard, profit is known to be an important indicator of financial health. With regard to risk, we discuss credit (including counterparty and default), market (including interest rate, price, and liquidity), operational (including house appraisal, valuation, and compensation), tranching (including maturity mismatch and synthetic) and systemic (including maturity transformation) risks. Also, we consider certain aspects of Basel regulation when securitization is taken into account. The main hypothesis of this paper is that the SMC was mainly caused by the intricacy and design of subprime mortgage securitization that led to information (asymmetry, contagion, inefficiency, and loss) problems, valuation opaqueness and ineffective risk mitigation. The aforementioned hypothesis is verified in a theoretical- and numerical-quantitative context and is illustrated via several examples.http://dx.doi.org/10.1155/2011/849342 |
| spellingShingle | M. A. Petersen J. Mukuddem-Petersen B. De Waal M. C. Senosi S. Thomas Profit and Risk under Subprime Mortgage Securitization Discrete Dynamics in Nature and Society |
| title | Profit and Risk under Subprime Mortgage Securitization |
| title_full | Profit and Risk under Subprime Mortgage Securitization |
| title_fullStr | Profit and Risk under Subprime Mortgage Securitization |
| title_full_unstemmed | Profit and Risk under Subprime Mortgage Securitization |
| title_short | Profit and Risk under Subprime Mortgage Securitization |
| title_sort | profit and risk under subprime mortgage securitization |
| url | http://dx.doi.org/10.1155/2011/849342 |
| work_keys_str_mv | AT mapetersen profitandriskundersubprimemortgagesecuritization AT jmukuddempetersen profitandriskundersubprimemortgagesecuritization AT bdewaal profitandriskundersubprimemortgagesecuritization AT mcsenosi profitandriskundersubprimemortgagesecuritization AT sthomas profitandriskundersubprimemortgagesecuritization |