Structured Products I : Fixed-income Derivatives and Asset-backed Securities

The securitization of various financial assets provides liquidity, facilitates the transfer of risk, and presents unique risk-return opportunities to buyers of such securities. These products can also provide financing in ways that cannot be normally obtained through conventional loans. Here, we expand the coverage of structured products by discussing fixed-income and interest rate derivatives, and asset-backed securities. A number of these alternative products were created in recent years and have been gaining increasing acceptance from market participants.In the first part of the chapter we cover fixed-income derivatives, introducing the most important models of the term structure and then describing and valuing interest rates caps and floors, callable bonds, and interest rate swaps. In the second part of the chapter, we describe and explain auto loan–backed securities and credit card receivables