Profit and risk under subprime mortgage securitization
type: Item
instance of: scholarly article
title: Profit and risk under subprime mortgage securitization
zbMATH Open document ID: 1230.91184
DOI: 10.1155/2011/849342
author: Juan-Miguel Gracia
published in: Discrete Dynamics in Nature and Society
publication date: 2012-01-23T00:00:00Z
review text: Summary: We investigate the securitization of subprime residential mortgage loans into structured products such as subprime residential mortgage-backed securities (RMBSs) and collateralized debt obligations (CDOs). Our deliberations focus on profit and risk in a discrete-time framework as they are related to RMBSs and RMBS CDOs. In this regard, profit is known to be an important indicator of financial health. With regard to risk, we discuss credit (including counterparty and default), market (including interest rate, price, and liquidity), operational (including house appraisal, valuation, and compensation), tranching (including maturity mismatch and synthetic) and systemic (including maturity transformation) risks. Also, we consider certain aspects of Basel regulation when securitization is taken into account. The main hypothesis of this paper is that the SMC was mainly caused by the intricacy and design of subprime mortgage securitization that led to information (asymmetry, contagion, inefficiency, and loss) problems, valuation opaqueness and ineffective risk mitigation. The aforementioned hypothesis is verified in a theoretical- and numerical-quantitative context and is illustrated via several examples.
Mathematics Subject Classification ID: 91G40
zbMATH DE Number: 5999664
Wikidata QID: Q58655553
MaRDI profile type: Publication
full work available at URL: https://doi.org/10.1155/2011/849342
OpenAlex ID: W2053098826
cites work: Optimal mortgage loan securitization and the subprime crisis
cites work: Bank valuation and its connections with the subprime mortgage crisis and basel II capital accord
cites work: Subprime risk and insurance with regret
description: scientific article; zbMATH DE number 5999664