General equilibrium existence with asset-backed securitization

Mariano Steinert () and Juan Pablo Torres-Martinez ()

No 490, Textos para discussão from Department of Economics PUC-Rio (Brazil)

Abstract: We propose a specification of a general equilibrium model with securitization of collateral-backed promises and discuss the role of physical collateral to avoid, in equilibrium, pessimistic beliefs about the future rates of default. Promises are pooled in either pass-through securities or collateralized loans obligations (CLO), allowing the existence of different seniority lev- els among tranches in the same CLO. In case of default, borrowers may also suffer extra-economic penalties, which are internalized into a structure of non-ordered preferences. In this context, we prove the existence of an equilibrium in that investors are not over-pessimistic about the payments of derivatives. JEL Codes: D52, D91

Keywords: Asset Backed-Securitization; Extra-economic Default Penalties; Collateral; Non- ordered Preferences (search for similar items in EconPapers)
Pages: 36p
Date: 2004-10
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:rio:texdis:490

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