The collateralised debt obligation (CDO) market has grown rapidly, both globally and in Australia, over recent years. CDOs are securities that are issued against a pool of assets that can include bonds, loans or asset-backed securities (ABS) including other CDOs.2 Increasingly, this exposure is being created synthetically by the use of derivatives written on these assets, rather than physically...

Commercial mortgage backed securities (CMBS) are complex asset backed securities trading in markets that do not currently use derivatives pricing technology. This lack of usage is due to the complexity of the modeling exercise, and only the recent and costly availability of historical data. As such, CMBS markets provide a natural environment for the testing of market efficiency with respect to ...

The securitization of subprime mortgages in instruments like mortgage-backed securities and collateralized debt obligations is one of the key ingredients to the current financial crisis. During 2007 and 2008, subprime defaults increased sharply, displaying high serial correlation in their arrival. Subprime default events depend on house price changes. We establish a link between the dynamics of...

Assume we are given a market consisting of m securities and k factors. The prices of securities depend on factors, the set of which may include dividend yields, rate of inflation, short term interest rates etc. Denote by V (n) the value of portfolio at time n. Given portfolio strategy h(n) = (h1(n), . . . , hm(n)) T , which is an R vector ( stands for the transpose) representing parts of capita...

A key feature of the 2007-2008 financial crisis is that for some classes of securities trade has ceased. And where trade does occur, it appears that market prices are well below what one might believe to be the intrinsic value for that class of security. This seems to be especially true for those securities where the payoff streams are particularly complex (for example, CDOs). One explanation f...

The tax burden on equity securities has varied substantially since US federal income taxes were introduced in 1913. Taxes on equity securities vary over time due to changes in dividend and capital gains tax rates and due to changes in corporate payout policies. Equity taxes also vary across firms due to persistent differences in propensities to pay dividends. Despite the continuing policy debat...

The securitization of financial assets is a form of structured finance, developed by the U.S. banking world in the early 1980’s (in Mortgage-Backed-Securities format) in order to reduce regulatory capital requirements by removing and transferring risk from the balance sheet to other parties. Today, virtually any form of debt obligations and receivables has been securitized, resulting in an appr...

Reliability and efficacy of accruals and cash flows which are among the most important factors affecting dividend deviation have always been in question and subject to anomalies. The presence of these anomalies in accruals and cash flows and its effect on future returns and the consequences that they can have in country’s investments are the main motives to choose this issue for the current stu...