The Economics of Securitization Structuring

Laurent Gauthier

Chapter 7 in Securitization Economics, 2020, pp 327-435 from Springer

Abstract: Abstract In this chapter, we examine the economics of securitization structures in order to make sense out of structural complexity. We first go through several economic models that can explain certain general aspects of securitization structures, in particular, the pooling of assets and the creation of layers of comparably structured bonds but with different degrees of risk. Then, we look into the handling of interest and principal specifically, in order to account for structuring techniques such as excess-spread or NIMs. We explain securitized product investor’s desire for par-priced bonds and show how this drives the use of complex interest and principal allocation methods. Finally, we walk through several empirical studies on structuring, which put the theoretical models to the test.

Date: 2020
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DOI: 10.1007/978-3-030-50326-0_7

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