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ABCs of CDO (CLO, CBO, CDO of ABS)

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Uploaded on Mar 27, 2008

After illustrating several CDO variations, I illustrate a generic CDO and consider the key differences that give rise to the alphabet soup of collateralized debt obligations (CDOs). The key differences concern the following. Motivation: bank seeks to remove assets from balance sheet (balance sheet) or investors hire collateral manager to seek yield (arbitrage). Risk Transfer: true sale or synthetic via credit default swaps (CDS). Reference Portfolio: many different types but either "physical debt" (loans, bonds) or structured debt (ABS, CDO). Funded: do investors fund (i.e., indirectly sell credit protection to) the entire reference portfolio or only part of the portfolio

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