Financial Markets and Institutions (2-downloads)

subprime mortgages to borrowers with less-than-stellar credit records.

The ability to cheaply bundle and quantify the default risk of the underlying high-

risk mortgages in a standardized debt security called mortgage-backed securities

provided a new source of financing for these mortgages. Financial innovation didn’t

stop there. Financial engineering, the development of new, sophisticated financial

instruments products, led to structured credit products that are derived from cash

flows of underlying assets and tailored to particular risk characteristics that appeal

to investors with differing preferences. One of these products, collateralized debt