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The credit derivative market meltdown and what lesson we can learn: A case study of Abacus 2007-AC1
KTH, School of Architecture and the Built Environment (ABE), Real Estate and Construction Management.
2011 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

Credit derivative has become an important financial instrument in global financial market, it plays significant role in transferring credit risk. During the latest financial crisis, collapse of credit derivative market was a main reason led to this worldwide turmoil. In this thesis, I try to investigate this adverse performance through a case study of Goldman Sach's ABACUS 2007-AC1. I conclude three major findings. First, severe interest conflicts and asymmetric information existed between counterparties in credit derivative market in U.S.. Second, the securities‘ credit ratings provided a downward-biased view of their actual default risks, the yields failed to account for the extreme exposure of structured products to declines in aggregate economic conditions. Third, credit derivatives do not eliminate systematic risk, they just shift the risk, CDOs exchanged diversifiable risk for systematic risk during the structuring process, which was difficult to understand for most of investors, we see risk accumulation rather than spreading risk,

Place, publisher, year, edition, pages
2011. , 50 p.
Keyword [en]
CDOs, financial crisis, market failure, adverse selection, agency theory
National Category
Civil Engineering
Identifiers
URN: urn:nbn:se:kth:diva-50035OAI: oai:DiVA.org:kth-50035DiVA: diva2:460832
Subject / course
Real Estate Economics
Educational program
Master of Science - Real Estate Management
Uppsok
Technology
Supervisors
Examiners
Available from: 2012-02-06 Created: 2011-12-01 Last updated: 2012-02-06Bibliographically approved

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CiteExportLink to record
Permanent link

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Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf