期权期货与其他衍生产品第九版课后习题与答案Chapter-(8)

Chapter8SecuritizationandtheCreditCrisisof2007PracticeQuestionsProblem8.1.WhatwastheroleofGNMA(GinnieMae)inthemortgage-backedsecuritiesmarketofthe1970s?GNMAguaranteedqualifyingmortgagesagainstdefaultandcreatedsecuritiesthatweresoldtoinvestors.Problem8.2.Explainwhatismeantbya)anABSandb)anABSCDO.AnABSisasetoftranchescreatedfromaportfolioofmortgagesorotherassets.AnABSCDOisanABScreatedfromparticulartranches(e.g.theBBBtranches)ofanumberofdifferentABSs.Problem8.3.Whatisamezzaninetranche?ThemezzaninetrancheofanABSorABSCDOisatranchethatisinthemiddleasfarassenioritygoes.Itisranksbelowtheseniortranchesandthereforeabsorbslossesbeforetheydo.Itranksabovetheequitytranche(sothattheequitytrancheabsorbslossesbeforeitdoes).Problem8.4.Whatisthewaterfallinasecuritization?Thewaterfalldefineshowthecashflowsfromtheunderlyingassetsareallocatedtothetranches.Inatypicalarrangement,cashflowsarefirstusedtopaytheseniortranchestheirpromisedreturn.Thecashflows(ifany)thatareleftoverareusedtoprovidethemezzaninetrancheswiththeirpromisedreturns.Thecashflows(ifany)thatareleftoverarethenusedtoprovidetheequitytrancheswiththeirpromisedreturns.Anyresidualcashflowsareusedtopaydowntheprincipalontheseniortranches.Problem8.5.WhatarethenumbersinTable8.1foralossrateofa)12%andb)15%?LossesonunderlyingassetsLossestomezzaninetrancheofABSLossestoequitytrancheofABSCDOLossestomezzaninetrancheofABSCDOLossestoseniortrancheofABSCDO12%46.7%100%100%17.9%15%66.7%100%100%48.7%Problem8.6.Whatisasubprimemortgage?Asubprimemortgageisamortgagewheretheriskofdefaultishigherthannormal.Thismaybebecausetheborrowerhasapoorcredithistoryortheratiooftheloantovalueishighorboth.Problem8.7.Whydoyouthinktheincreaseinhousepricesduringthe2000to2007periodisreferredtoasabubble?Theincreaseinthepriceofhouseswascausedbyanincreaseinthedemandforhousesbypeoplewhocouldnotaffordthem.Itwasthereforeunsustainable.Problem8.8.Whydidmortgagelendersfrequentlynotcheckoninformationprovidedbypotentialborrowersonmortgageapplicationformsduringthe2000to2007period?Subprimemortgageswerefrequentlysecuritized.Theonlyinformationthatwasretainedduringthesecuritizationprocesswastheapplicant’sFICOscoreandtheloan-to-valueratioofthemortgage.Problem8.9.HowweretherisksinABSCDOsmisjudgedbythemarket?Investorsunderestimatedhowhighthedefaultcorrelationsbetweenmortgageswouldbeinstressedmarketconditions.InvestorsalsodidnotalwaysrealizethatthetranchesunderlyingABSCDOswereusuallyquitethinsothattheywereeithertotallywipedoutoruntouched.Therewasanunfortunatetendencytoassumethatatranchewithaparticularratingcouldbeconsideredtobethesameasabondwiththatrating.Thisassumptionisnotvalidforthereasonsjustmentioned.Problem8.10.Whatismeantbytheterm“agencycosts”?Howdidagencycostsplayaroleinthecreditcrisis?“Agencycosts”isatermusedtodescribethecostsinasituationwheretheinterestsoftwopartiesarenotperfectlyaligned.Therewerepotentialagencycostsbetweena)theoriginatorsofmortgagesandinvestorsandb)employeesofbankswhoearnedbonusesandthebanksthemselves.Problem8.11.HowisanABSCDOcreated?WhatwasthemotivationtocreateABSCDOs?TypicallyanABSCDOiscreatedfromtheBBB-ratedtranchesofanABS.ThisisbecauseitisdifficulttofindinvestorsinadirectwayfortheBBB-ratedtranchesofanABS.Problem8.12.ExplaintheimpactofanincreaseindefaultcorrelationontherisksoftheseniortrancheofanABS.Whatisitsimpactontherisksoftheequitytranche?Asdefaultcorrelationincreases,theseniortrancheofaCDObecomesmoreriskybecauseitismorelikelytosufferlosses.Asdefaultcorrelationincreases,theequitytranchebecomeslessrisky.Tounderstandwhythisisso,notethatinthelimitwhenthereisperfectcorrelationthereisahighprobabilitythattherewillbenodefaultsandtheequitytranchewillsuffernolosses.Problem8.13.ExplainwhytheAAA-ratedtrancheofanABSCDOismoreriskythantheAAA-ratedtrancheofanABS.AmoderatelyhighdefaultratewillwipeoutthetranchesunderlyingtheABSCDOsothattheAAA-ratedtrancheoftheABSCDOisalsowipedout.AmoderatelyhighdefaultratewillatworstwipeoutonlypartoftheAAA-ratedtrancheofanABS.Problem8.14.Explainwhytheend-of-yearbonusissometimesreferredtoas“short-termcompensation.”Theend-of-yearbonususuallyreflectsperformanceduringtheyear.Thistypeofcompensationtendstoleadtradersandotheremployeesofbankstofocusontheirnextbonusandthereforehaveashort-termtimehorizonfortheirdecisionmaking.Problem8.15.AddrowsinTable8.1correspondingtolossesontheunderlyingassetsof(a)2%,(b)6%,(c)14%,and(d)18%.LossestosubprimeportfolioLossestoMezztrancheofABSLossestoequitytrancheofABSCDOLossestoMezztrancheofABSCDOLossestoseniortrancheofABSCDO2%0%0%0%0%6%6.7%67%0%0%14%60%100%100%38.5%18%86.7%100%100%79.5%FurtherQuestionsProblem8.16.Supposethattheprincipalassignedtothesenior,mezzanine,andequitytranchesis70%,20%,and10%forboththeABSandtheABSCDOinFigure8.3.WhatdifferencedoesthismaketoTable8.1?LossestosubprimeportfolioLossestoMezztrancheofABSLossestoequitytrancheofABSCDOLossestoMezztrancheofABSCDOLossestoseniortrancheofABSCDO10%0%0%0%0%13%15%100%25%0%17%35%100%100%7.1%20%50%100%100%28.6%Problem8.17.‘‘Resecuritizationwasabadlyflawedidea.AAAtranchescreatedfromthemezzaninetranchesofABS