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Flavin, Thomas, Dwyer, Patrick and Dungey, Mardi (2011) Systematic and Liquidity Risk in Subprime-Mortgage Backed Securities. Working Paper. NUI Maynooth. (Unpublished)
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Abstract
Abstract
The misevaluation of risk in securitized �nancial products is central to understand-
ing the Financial Crisis of 2007-2008. This paper characterizes the evolution of factors
a¤ecting collateralized debt obligations (CDOs) based on subprime mortgages. A key
feature of subprime-mortgage backed indices is that they are distinct in their vintage
of issuance. Using a latent factor framework that incorporates this vintage e¤ect, we
show the increasing importance of a common factor on more senior tranches during the
crisis. We examine this common factor and its relationship with spreads. We estimate
the e¤ects on the common factor of the �nancial crisis.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Keywords: | asset backed securities; subprime mortgages; �nancial crisis; factor mod- els; Kalman �lter; |
| Academic Unit: | Faculty of Social Sciences > Economics, Finance and Accounting |
| Item ID: | 2825 |
| Depositing User: | Thomas Flavin |
| Date Deposited: | 15 Nov 2011 11:46 |
| Publisher: | NUI Maynooth |
| Use Licence: | This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available here |
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