What is the default probability of the mezzanine tranche? Consider three bonds X, Y, and Z, each
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Consider three bonds X, Y, and Z, each of which pays $1000 if it does not default, and nothing in case of default. The default probabilities are 0.3, 0.2, and 0.1 respectively, and the default correlations are all zero. These bonds are bundled together to form an asset pool, and a prioritized structure of claims (tranches) against this pool are issued. There are three tranches (senior, mezzanine, and junior), each of which promise $1000. If there are insufficient funds to make all promised payments, then all losses are applied first to the junior tranche, then to the mezzanine, and finally to the senior tranche. Consider three bonds X, Y, and Z, each of which pays $1000 if it does not default, and nothing in case of default. The default probabilities are 0.3, 0.2, and 0.1 respectively, and the default correlations are all zero. These bonds are bundled together to form an asset pool, and a prioritized structure of claims (tranches) against this pool are issued. There are three tranches (senior, mezzanine, and junior), each of which promise $1000. If there are insufficient funds to make all promised payments, then all losses are applied first to the junior tranche, then to the mezzanine, and finally to the senior tranche.
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Related Book For
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts
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