Asset-Backed CDSs

Christopher L. Culp (), Andria van der Merwe () and Bettina J. Stärkle ()
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Christopher L. Culp: Johns Hopkins University
Andria van der Merwe: Johns Hopkins University
Bettina J. Stärkle: Compass Lexecon

Chapter Chapter 5 in Credit Default Swaps, 2018, pp 99-124 from Palgrave Macmillan

Abstract: Abstract Credit default swaps (“CDSs”) based on asset-backed securities (“ABSs”) (including residential mortgage-backed securities (“RMBSs”), home equity loan-based ABSs, and tranches of collateralized debt obligations (“CDOs”)) are not amenable to the same ISDA credit definitions applied to single-name CDSs based on specific reference entities. To address the specialized nature of CDSs backed by ABSs, ISDA published in 2005 and 2006 “pay-as-you-go” documentation that was better suited to the cash flows of ABSs and complications raised by the issuance of ABSs by special purpose entities (“SPEs”). Although such asset-backed CDSs (“ABCDSs”) have virtually disappeared since the outbreak of the credit crisis, the fundamental idea behind pay-as-you-go ABCDSs is sound, and such products could well re-emerge again (albeit not necessarily based on US subprime mortgage-based ABSs).

Keywords: Asset-backed credit default swap; Asset-backed CDS; ABCDS; Collateralized debt obligation; Mortgage-backed security; Asset-backed security; Special purpose entity; SPE; Pay-as-you-go (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/978-3-319-93076-3_5

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