CDOs

The main difference between a synthetic CDO and a cash CDO lies in the fact that the bank holds a portion of the reference portfolio instead of selling it off to investors.  The banks will then buy credit protection through CDS.  Banks will ho

This video summarizes the various types of CDO structures that exist in the market and the differentiating factors, such as motivation, risk transfer, fully funded or partially funded, and the composition of the reference portfolio.

A balance sheet CDO allows one party to transfer credit risk to a group of investors through a special purpose vehicle (SPE).  Banks will sell loans to the SPE which will be underwritten and sold off to investors.  Investors wil

This video illustrates a partially funded synthetic CDO structure and how it has failed in the wake of the sub-prime crisis.  The term partially funded references the fact that only a portion of the portfolio is collateralized.  These highly leveraged entities depend on