Structured Credit Risk (FRM Part 2 2023 – Book 2 – Chapter 8)

For FRM (Part I & Part II) video lessons, study notes, question banks, mock exams, and formula sheets covering all chapters of the FRM syllabus, click on the following link: https://analystprep.com/shop/unlimite...

AnalystPrep is a GARP-Approved Exam Preparation Provider for FRM Exams

After completing this reading you should be able to:
- Describe common types of structured products.
- Describe tranching and the distribution of credit losses in a securitization.
- Describe a waterfall structure in a securitization.
- Identify the key participants in the securitization process and describe conflicts of interest that can arise in the process.
- Compute and evaluate one or two iterations of interim cashflows in a three-tiered securitization structure.
- Describe a simulation approach to calculating credit losses for different tranches in a securitization.
- Explain how the default probabilities and default correlations affect the credit risk in a securitization.
- Explain how default sensitivities for tranches are measured.
- Describe risk factors that impact structured products.
- Define implied correlation and describe how it can be measured.
- Identify the motivations for using structured credit products.