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| The Analysis of Structured Securities: Precise Risk Measurement and Capital Allocation | 
 enlarge | Authors: Sylvain Raynes, Ann Rutledge
Publisher: Oxford University Press, USA
Category: Book
List Price: $109.45
Buy New: $69.15
You Save: $40.30 (37%)
Buy New/Used from $63.00
Avg. Customer Rating:  (7 reviews)
Sales Rank: 776998
Languages: English (Original Language), English (Unknown), English (Published)
Media: Hardcover
Number Of Items: 1
Pages: 464
Shipping Weight (lbs): 1.7
Dimensions (in): 9.3 x 6.3 x 1.2
ISBN: 0195152735
Dewey Decimal Number: 332.632044
EAN: 9780195152739
ASIN: 0195152735
Publication Date: September 25, 2003
Availability: Usually ships in 1-2 business days
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| Editorial Reviews:
Product Description
The Analysis of Structured Securities presents the first intellectually defensible framework for systematic assessment of the credit quality of structured securities.
It begins with a detailed description and critique of methods used to rate asset-backed securities, collateralized debt obligations and asset-backed commercial paper. The book then proposes a single replacement paradigm capable of granular, dynamic results. It offers extensive guidance on using numerical methods in cash flow modeling, as well as a groundbreaking section on trigger optimization. Casework on applying the method to automobile ABS, CDOs-of-ABS and aircraft-lease securitizations is also presented.
This book is essential reading for practitioners who seek higher precision, efficiency and control in managing their structured exposures.
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| Customer Reviews: Read 2 more reviews...
a comprehensive structured finance July 4, 2006
0 out of 1 found this review helpful
This book is suitable for who has quantitative background, the authors have hands-on experiences in both Rating agency and in investment -bank, This book unveil the secret of how rating agency rate structured finance and how should originator to better control their risk and in what dimention.
 An effective introduction November 18, 2005
9 out of 10 found this review helpful
Written for financial engineers, this book nevertheless can also be read profitably by anyone interested in mathematical modeling or mathematical finance. The authors discuss in fair detail the science of structured securities, which are financial products that are becoming more important as investors and financial firms continue to find more intricate ways of dealing with risk. For non-experts (such as this reviewer) in the field of structured finance, the book requires careful reading and attention to detail. Readers are expected to have an understanding of various mathematical topics such as Markov chains, linear algebra, Monte Carlo simulation, and probability and statistics.
As an investment strategy, the authors describe structured securities as performing best in "controlled" environments. This involves the use of `transaction documents', which are used to keep their performance within an expected range, and also `macro-level' controls to assist in dealing with event shocks. The basic idea of a structured security is to assemble a credit or investment package from a variety of sources and allow them to be administered by third parties. This entails that the sources (the transferors) be completely decoupled from the transferee, the latter of which is called a `special purpose entity' (SPE), and which has an extremely low likelihood of becoming insolvent by its own activities. The SPE is an analogue of the obligor, and is also shielded from the consequences of the insolvency of a related party. Its assets are thus `perfected' against the claims of the transferor.
Early in the book the authors describe what they consider to be the two types of structured securities. The first, called the `long-term transaction model' applies to asset-backed, mortgage-backed, and collateralized debt issues with maturity at least one year. The second, called the `short-term transaction model' applies to asset-backed commercial paper markets.
If structured securities are to be used as an investment strategy, their value must be assessed in as fine a detail as possible. This assessment is of course the main goal behind the authors' book, and they therefore spend a fair amount of time in explaining why the usual credit rating strategies are inadequate for structured securities. One of those discussed is `benchmark pool analysis' which does not require a large volume of data and uses a microeconomic model of the obligors in a collateral pool to simulate the financial impact of economic shocks. Others discussed include the actuarial method, used for asset-backed and mortgage-backed transactions, and the default method, which is used for collateralized debt obligations.
The most interesting discussions take place when the authors attempt to formulate a more exact, analytical notion of rating for structured securities than what is available with the usual corporate rating model. Essentially the authors are advocating a "unification" of credit and market risk in structured finance in their attempt to replace the alphanumeric scale of the usual corporate credit rating by a numerical scale (they motivate this interestingly by discussion involving the `continuum hypothesis' from set theory). Most important in their approach is to view the pricing of structured securities as a nonlinear problem: rating and pricing are entangled with each other, in that to obtain the rating the promised yield must be known; but to find the yield, the rating must be known. There is of course a paucity of exact solutions to nonlinear problems, and so numerical techniques must be used. The authors spend a fair amount of time discussing these techniques in the book, and in formulating the problem of structured pools as one involving (Markovian and non-stationary) stochastic processes.
As a warm-up to the complications of asset behavior, the authors first discuss the modeling of liabilities. The collection and distribution of cash to various parties is contained in the `pooling and servicing agreement' (P&S), which is a legally binding document that contains a collection of payment instructions called a `waterfall' or `structure.' A waterfall codifies the payment prioritization taken from the funds that are available. Examples are given that illustrate their analysis.
For those not familiar with Markov chains, the authors give a short review, and argue that they are important to structured finance due to their ability to eliminate long-term static pool data requirements. The Markov chains used in structured finance are finite-state Markov chains, where the states correspond to recognized delinquency states of an issuer in some asset class. The transition matrices of the associated asset pools represent the credit dynamics of structured securities. The authors give three very detailed examples of their formalism, the first one of these, dealing with automobile receivable securitizations, should be familiar to most readers.
The last chapter of the book deals with `triggers', which generalizes the earlier discussion on liability modeling. The authors describe triggers as being the most `intricate' aspect of the analysis of structured securities. If one views them in terms of their physics analogy as control structures, they are fairly straightforward to understand. `Cash flow triggers' which allow a reallocation of cash but it does so without being too disruptive or expensive, are the only types considered in this chapter. The cash reallocation is obtained through the use of a `trigger index', which is usually dependent on transaction variables such as delinquencies or tranche principal balances. A trigger is `breached' if its trigger index is higher than a pre-selected threshold on any determination date.
The authors discuss four basic types of triggers, all of which are defined mathematically in terms of the proportion P(x(t)) of excess spread to be reallocated and some variable function x(t) of the trigger index: `binary', in which all excess cash is reallocated to the spread account when there is a breach at time t; `proportional', which allows a kind of "ramping up" of the triggering; `differential', where the excess spread is proportional to the first derivative of x(t); and `integral', where P(x(t)) is proportional to the integral of x(t) over a time interval with lower bound the breaching time and the upper bound the current time. Monte Carlo simulations are used to optimize trigger mechanisms.
Mandatory reading for those interested in structured finance August 17, 2005
4 out of 5 found this review helpful
Prof Raynes, who is a well known practitioner in this field has distilled his knowledge and insight to publish this book. I am a student in the class that he teaches at Baruch College, CUNY and the classnotes which are so well written have been incorporated in the book. Prof Raynes emphasizes why structured finance is so different from corporate finance and that realization is critical to understand the flaw in the methodology followed by rating agencies while rating structured securities. The book also has considerable and necessary numerical procedures required in the analysis. My only comment that while the book is invaluable as a reference, it would be more useful as a textbook if future versions include end of chapter exercises.
An integrated, optimizing way to evaluate ABS's July 22, 2004
8 out of 9 found this review helpful
I became aware of the authors through a colleague who was taking one of their classes at NYU. The homework assignments (on which I ?uh- consulted) were interesting, comprehensive, and touched on a number of important subjects, so I bought their book.
The Analysis of Structured Securities - Precise Risk Measurement and Capital Allocation provides reference and background material on a number of quantitative ABS analytic tools, some of which I was familiar with and some which I should have been. Matrix math, eigenvalues and eigenvectors, Markov chains, Cholesky decomposition, Tchebychev polynomials, covariance and correlation and numerous other statistical techniques are addressed as ABS analytical techniques and not as mathematically rarefied numerical analysis procedures.
But what I found most valuable was the focus on reduction-in-yield as the benchmark metric for ABS credit quality. Rather than credit ratings being an ex ante, handed-down-from-on-high, assumed-to-be-valid-within-a-notch-or-two inputs (which, I blush to admit, is how I too often think of them), the book points out how credit ratings should be thought of as a continuous, dynamic variable, interacting with the coupon, yield, prepayment vector, default vector, and triggers. The interactions are determined by cash flow modeling and Monte Carlo simulations, using the techniques mentioned above.
Given this framework and tools, the book discusses how to efficiently optimize the structured security. I have had ABS issuers ask if there were not a way to optimize securitizations beyond what they suspiciously perceived as Wall Street cookie cutter structures. Previously, I have just shrugged. Now I know how to help them.
Good overview of structured finance field February 23, 2004
3 out of 6 found this review helpful
I liked this book because it's useful for people with various levels of structured finance knowledge. The first few chapters explain the thought process behind the rating process and provide an introduction into the structured finance world of thinking. The second half goes into more depth about actual rating processes. The third part addresses asset specific issues (auto, airlines, etc...) While the last few chapters of the book review more advanced methods of analysis.For people with little or no knowledge of the structured finance field, the first half of the book will provide a good understanding of the subject, the 2nd half of the book will probably required more time and effort to fully appreciate its value.
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