Darshi, Priyanka (2011) COLLATERALIZED DEBT OBLIGATION AND THE SUB PRIME MORTGAGE CRISIS OF 2008. [Dissertation (University of Nottingham only)] (Unpublished)

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Collateralised Debt Obligations are the structured products which were created as a Credit Risk Transfer vehicle. Being a structured product, its characteristics are quite complex and not fixed as it is customised as per investor demand and ability. The structure is not fixed in the senses it can have any permutation and combination of underlying collateral of the varied types of assets, with each arrangement giving a distinct product and making it difficult to assess its risk.

CDO, the recent credit derivative instruments have been the most commonly used term used in financial market from the last two decades. While CDOs were recklessly issued by banks to make profits, investors were attracted towards it due to its high yield and low interest rate feature. Although it seemed a win-win game for every player, the complexity and hidden risk wasn’t understood by the market till the crisis engulfed the economy adversely in 2008.The fact that no higher profits can be made by sacrifice of more risk, applies equally to this case as well and were subject to same law of risk and return as the capital market. Hence assessing the risk exposure of CDOs is equally important to take into account while investing with the expectation of making higher profits at low rate.

After the crisis, in which the world economy suffered badly it is now understood that due to the complex nature of CDOs, it should be dealt cautiously to be benefitted. Hence the regulators with their goal of investor and market protection should make sure that fair and full information is being provided to the investors prior investment.

The thesis provides comprehensive research on the collateralised debt obligation and focuses on its remarkably distinct features. It further analyses the misuse of the subprime mortgages loans and the greed which led to the financial crisis costing trillions of dollars and affecting the life of millions throughout the globe. The meltdown of the CDO market, which fuelled the crisis further, has given lesson for prudent use of the derivative

It is recommended that understanding the risk and complexity of the product before investment is vital, also adequate knowledge should be provided by regulators and investors should only go for investments and the products which suit their requirement.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 25 Apr 2012 15:26
Last Modified: 30 Jan 2018 18:23

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