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Asset-Backed CDSs

In: Credit Default Swaps

Author

Listed:
  • Christopher L. Culp

    (Johns Hopkins University)

  • Andria van der Merwe

    (Johns Hopkins University)

  • Bettina J. Stärkle

    (Compass Lexecon)

Abstract

Credit default swaps (“CDSs”) based on asset-backed securities (“ABSs”) (including residential mortgage-backed securities (“RMBSs”), home equity loan-based ABSs, and tranches of collateralized debt obligations (“CDOs”)) are not amenable to the same ISDA credit definitions applied to single-name CDSs based on specific reference entities. To address the specialized nature of CDSs backed by ABSs, ISDA published in 2005 and 2006 “pay-as-you-go” documentation that was better suited to the cash flows of ABSs and complications raised by the issuance of ABSs by special purpose entities (“SPEs”). Although such asset-backed CDSs (“ABCDSs”) have virtually disappeared since the outbreak of the credit crisis, the fundamental idea behind pay-as-you-go ABCDSs is sound, and such products could well re-emerge again (albeit not necessarily based on US subprime mortgage-based ABSs).

Suggested Citation

  • Christopher L. Culp & Andria van der Merwe & Bettina J. Stärkle, 2018. "Asset-Backed CDSs," Palgrave Studies in Risk and Insurance, in: Credit Default Swaps, chapter 0, pages 99-124, Palgrave Macmillan.
    • Handle: RePEc:pal:psircp:978-3-319-93076-3_5
    DOI: 10.1007/978-3-319-93076-3_5
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