Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76885
Authors: 
Jobst, Andreas A.
Year of Publication: 
2003
Series/Report no.: 
Working Paper Series: Finance & Accounting, Johann Wolfgang Goethe-Universität Frankfurt a. M. 121
Abstract: 
Asset-backed securitisation (ABS) is an asset funding technique that involves the issuance of structured claims on the cash flow performance of a designated pool of underlying receivables. Efficient risk management and asset allocation in this growing segment of fixed income markets requires both investors and issuers to thoroughly understand the longitudinal properties of spread prices. We present a multi-factor GARCH process in order to model the heteroskedasticity of secondary market spreads for valuation and forecasting purposes. In particular, accounting for the variance of errors is instrumental in deriving more accurate estimators of time-varying forecast confidence intervals. On the basis of CDO, MBS and Pfandbrief transactions as the most important asset classes of off-balance sheet and on-balance sheet securitisation in Europe we find that expected spread changes for these asset classes tends to be level stationary with model estimates indicating asymmetric mean reversion. Furthermore, spread volatility (conditional variance) is found to follow an asymmetric stochastic process contingent on the value of past residuals. This ABS spread behaviour implies negative investor sentiment during cyclical downturns, which is likely to escape stationary approximation the longer this market situation lasts.
Subjects: 
ABS
CBO
CDO
CLO
GARCH model
MBS
Pfandbrief
Securitisation
structured finance
JEL: 
C12
C32
C53
G12
G21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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