Market of CDO structured products in terms of world financial crisis

Michal Buszko
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Michal Buszko: Wydzial Nauk Ekonomicznych i Zarzadzania UMK

Acta Universitatis Nicolai Copernici, Ekonomia, 2010, vol. 41, 141-158

Abstract: Collateralized debt obligations (CDO) are new, innovative products available to institutional investors on the global financial markets. Their development is strictly related to the subprime loans expansion. In the recent years CDO have become a financial tool of transferring worldwide a risk of American mortgage loan market. In fact, due to CDO such transfer was enormous and uncontrolled. As CDO are not transparent nor they are traded at stock exchange, their valuation and performance assessment are very difficult. In practice, very fast growth of subprime loans in US boosted development of CDO on global financial market. On the other hand, the mentioned structured products supplied capital to subprime segment, increasing the amount of non-conforming loans and hence the risk level in the global financial sector. Because CDO played significant role in the credit risk proliferating and generation of enormous losses among biggest investment and commercial banks, the aim of this paper is to present the idea, nature and mode of functioning of CDO. Also, the paper describes the CDO market in terms of world financial crisis.

Keywords: CDO; credit risk; subprime; securitizaton; credit rating; collateral. (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:cpn:umkanc:2010:p:141-158

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