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| The Billion Dollar Question By Rachael Horsewood ISR International Securitisation Report Published: 27 September, 2005 Different views on how to calculate the amount of risk transferred in this market were expressed in letters to the editor that were published soon afterwards. One argued that the delta, or leverage, of individual tranches was the best way of estimating the amount of risk moving in the market. The other said that it was misleading to look only at delta hedging since it depends on what the dealers divulge. Janet Tavakoli, an ex-investment banker who is now a structured credit consultant, argued the latter. She said the data that banks provide can sometimes be based on different parameters and that it therefore can be glorified to make it look like their market share is greater than it actually is. Tavakoli said that the full notional amounts of the CDO must be considered too. “Arrangers will sometimes only report the notional amount of a sold mezzanine tranche, but will have a much greater amount of residual risk in what I call the imperfectly hedged position – in which the arranger is long a slice of equity risk but short the entire mezzanine tranche,” she explained to ISR in a subsequent interview. END
OF EXCERPT Janet Tavakoli's
book on the global financial meltdown is Dear
Mr. Buffett: What An Investor Learns 1,269 Miles From Wall
Street (Wiley 2009). TSF makes some information available to the general public. Please click here for other articles. |
Janet
Tavakoli, President: jt@tavakolistructuredfinance.com
TEL: (312) 540-0243 |