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Collateralised Debt Obligation
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| - | A collateralized debt obligation is an asset-back security ([[ABS]]) which uses a [[Portfolio|portfolio]] of [[Bond|bond]]s or loans with varying levels of [[Default|default]] [[Risk|risk]] as [[Collateral|collateral]]. The portfolio is put together by a bank and sold in [[Tranche|tranche]]s according to their level of risk to investors through a special purpose vehicle ([[SPV]]). Higher risk tranches offer higher [[Coupon|coupon]] payments. Holders suffered large losses as a result of the U.S. [[Subprime Mortgage|subprime mortgage]] crisis of 2007. | + | A collateralized debt obligation or CDO is an asset-back security ([[ABS]]) which uses a [[Portfolio|portfolio]] of [[Bond|bond]]s or loans with varying levels of [[Default|default]] [[Risk|risk]] as [[Collateral|collateral]]. The portfolio is put together by a bank and sold in [[Tranche|tranche]]s according to their level of risk to investors through a special purpose vehicle ([[SPV]]). Higher risk tranches offer higher [[Coupon|coupon]] payments. A number of holders of CDOs suffered large losses as a result of the U.S. [[Subprime Mortgage|subprime mortgage]] crisis of 2007. |
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| | See also: [[Securitization]], [[Credit Derivatives]], [[Derivatives]], [[TARP]], [[Toxic Assets]] | | See also: [[Securitization]], [[Credit Derivatives]], [[Derivatives]], [[TARP]], [[Toxic Assets]] |
Revision as of 09:26, 24 April 2010
A collateralized debt obligation or CDO is an asset-back security (ABS) which uses a portfolio of bonds or loans with varying levels of default risk as collateral. The portfolio is put together by a bank and sold in tranches according to their level of risk to investors through a special purpose vehicle (SPV). Higher risk tranches offer higher coupon payments. A number of holders of CDOs suffered large losses as a result of the U.S. subprime mortgage crisis of 2007.
See also: Securitization, Credit Derivatives, Derivatives, TARP, Toxic Assets