Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/175976 
Year of Publication: 
2004
Series/Report no.: 
Texto para discussão No. 490
Publisher: 
Pontifícia Universidade Católica do Rio de Janeiro (PUC-Rio), Departamento de Economia, Rio de Janeiro
Abstract: 
We propose a specification of a general equilibrium model with securitization of collateral-backed promises and discuss the role of physical collateral to avoid, in equilibrium, pessimistic beliefs about the future rates of default. Promises are pooled in either pass-through securities or collateralized loans obligations (CLO), allowing the existence of different seniority lev- els among tranches in the same CLO. In case of default, borrowers may also suffer extra-economic penalties, which are internalized into a structure of non-ordered preferences. In this context, we prove the existence of an equilibrium in that investors are not over-pessimistic about the payments of derivatives. JEL Codes: D52, D91
Subjects: 
Asset Backed-Securitization
Extra-economic Default Penalties
Collateral
Non- ordered Preferences
Document Type: 
Working Paper

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