Collateralized Networks

Crashes and Collateralized Lending

This paper develops a parsimonious static model for characterizing financing terms in collateralized lending markets. We characterize the systematic risk exposures for a variety of securities and develop a simple indifference-pricing framework to value the systematic crash risk exposure of the collateral. We then apply Modigliani and Miller’s (1958) Proposition Two (MM) to split the cost of bea...

Collateralized Borrowing and Increasing Risk

This paper uses a general equilibrium model with collateralized borrowing to show that increases in risk can have ambiguous effects on leverage, loan margins, loan amounts, and asset prices. Increasing risk about future payoffs and endowments can lead to riskier loans with larger balances and lower spreads even when lenders are riskaverse and borrowers can default. As well, increasing the covar...

Risk Analysis of Collateralized Debt Obligations

Collateralized debt obligations, which are are securities with payoffs that are tied to the cash flows in a portfolio of defaultable assets such as corporate bonds, play a significant role in the financial crisis that has spread throughout the world. Insufficient capital provisioning due to flawed and overly optimistic risk assessments is at the center of the problem. This paper develops stocha...

Bank Collateralized Loan Obligations: An Overview

Collateralized loan obligation (CLO) volume has increased significantly over the past two years (see chart, page 2). Third-quarter 1997 issuance hit a record-breaking $25.5 billion, more than doubling the 1996 volume of $11.5 billion. Furthermore, by year end, it is estimated that the total volume for collateralized bond obligations (CBOs) and CLOs will reach $35 billion– $40 billion. With larg...

Securitization & Hedge Funds: Collateralized Fund Obligations