Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/195784 
Year of Publication: 
2017
Citation: 
[Journal:] Risks [ISSN:] 2227-9091 [Volume:] 5 [Issue:] 4 [Publisher:] MDPI [Place:] Basel [Year:] 2017 [Pages:] 1-13
Publisher: 
MDPI, Basel
Abstract: 
We address the moral hazard problem of securitization using a principal-agent model where the investor is the principal and the lender is the agent. Our model considers structured asset-backed securitization with a credit enhancement (tranching) procedure. We assume that the originator can affect the default probability and the conditional loss distribution. We show that the optimal form of retention must be proportional to the pool default loss even in the absence of systemic risk when the originator can affect the conditional loss given default rate, yet the current regulations propose a constant retention rate.
Subjects: 
securitization
optimal retention
moral hazard
tranching
credit enhancement
conditional loss distribution
JEL: 
D80
D82
D86
G14
G21
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
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