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May i ask for a clarification in the explanation of question 268? (exam 3)
The BCBS refers that : “At the outset of the crisis, mortgage default shocks played a part in the deterioration of market prices of collateralised debt obligations (CDOs). “
In my view: The CDO, which is a kind of insurance (securitization), pays more provided that the risk is higher. As the mortgage defaults increased, the market price of the CDO should have been increased and not decreased.
Could you please help?
Thank you in advance.
GeorgeMay i ask for a clarification in the explanation of question 268? (exam 3)
The BCBS refers that : “At the outset of the crisis, mortgage default shocks played a part in the deterioration of market prices of collateralised debt obligations (CDOs). “
In my view: The CDO, which is a kind of insurance (securitization), pays more provided that the risk is higher. As the mortgage defaults increased, the market price of the CDO should have been increased and not decreased.
Could you please help?
Thank you in advance.
George[/quote]CDS and CDO are not the same thing. Securitization is not a form of insurance.
CDOs are about securitization and CDSs are about protection (or insurance).Jim
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