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colletateralised debt olbligations

S

Sponge

Member
I really do not understand the answers to question 1 of April 2017 paper parts x to xv on CDO's

I still do not understand the points made, include the cashflow diagram
 
I am looking at IFOA solutions, I do not think that the April 2017 paper solutions are in ASET. the ASET have solutions up to 2016 and before.

my basic understanding is that the product is gives Fixed income to the holder of the CDO and the holder of the CDO pays the seller of the CDO a lump sum in the event of default. I am not too sure who defaults in this scenario. So when does the buyer of the CDO pay the seller of the CDO? With regard to the timeline, is the seller's premium continuous until a default event then the buyer of the CDO makes a single payment on the event that there is a default, whatever the default event is???

I am not too sure what the relevance of the CDO being backed by (loan/bond/mortgage/etc.) debt is used in this scenario. How does this act as collateral. Is it there a guarantee for the fixed Premiums to the buyer of the CDO. Is the buyer guaranteed the fixed Premiums because the issuer of the debt obligation is "guaranteed" to receive interest/principal from the borrower of the debt.

I'm just not too sure how who benefits from the arrangement?

I'm sorry that this is long.
 
There is a mini-ASET for April 2017 exams available.

I'm afraid I can't answer your post as I'm still not sure what the question is - it sounds like you are mixing up CDOs (a debt instrument which is collateralized against some reference bond) and CDS (where premiums are paid for protection against the risk of default of some reference bond).
 
the question is the April 2017 paper q1 part xi to xv. it simply goes throuhgh teh setting up of a CDO and the reasons behind it.

I am not too sure which of the 2 the question is describing a CDO or as you say a CDS? But it seems as though a structure involving a debt instrument is created with corporate bonds as the colateral. What is unclear is the timing of the cashflows from the buyer to seller and from the seller to the buyer. What credit event in this scenario triggers a payoff and could you please explain how all the cashflows work?
 
Hi, I know what question you are referring to. I don't understand your references to credit events/payoffs etc in the context of a CDO. These are terms used in a CDS (which is a completely different risk transfer arrangement). I think you are confusing the two. I suggest you google "Collateralized debt obligation" and "credit default swap" to get clear on these terms first.
 
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