Abstract

http://ssrn.com/abstract=1287363
 
 

References (42)



 
 

Citations (90)



 


 



The Economics of Structured Finance


Joshua D. Coval


Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Jakub W. Jurek


University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Erik Stafford


Harvard Business School - Finance Unit

October 20, 2008

Harvard Business School Finance Working Paper No. 09-060

Abstract:     
The essence of structured finance activities is the pooling of economic assets (e.g. loans, bonds, mortgages) and subsequent issuance of a prioritized capital structure of claims, known as tranches, against these collateral pools. As a result of the prioritization scheme used in structuring claims, many of the manufactured tranches are far safer than the average asset in the underlying pool. We examine how the process of securitization allowed trillions of dollars of risky assets to be transformed into securities that were widely considered to be safe, and argue that two key features of the structured finance machinery fueled its spectacular growth. At the core of the recent financial market crisis has been the discovery that these securities are actually far riskier than originally advertised.

Number of Pages in PDF File: 37

Keywords: CDO, Structured Finance, Rating Agency

JEL Classification: G1

working papers series


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Date posted: October 22, 2008  

Suggested Citation

Coval, Joshua D. and Jurek, Jakub W. and Stafford, Erik, The Economics of Structured Finance (October 20, 2008). Harvard Business School Finance Working Paper No. 09-060. Available at SSRN: http://ssrn.com/abstract=1287363 or http://dx.doi.org/10.2139/ssrn.1287363

Contact Information

Joshua D. Coval
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Jakub W. Jurek
University of Pennsylvania - Finance Department ( email )
The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-1588 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Erik Stafford (Contact Author)
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-8064 (Phone)
617-496-7357 (Fax)
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