ABS, MBS and CDO pricing comparisons: an empirical analysis
Vink, Dennis Thibeault, André
Vink, Dennis
Thibeault, André
Citations
Altmetric:
Publication Type
Journal article
Editor
Supervisor
Publication Year
2008
Journal
Journal of Structured Finance
Book
Publication Volume
14
Publication Issue
2
Publication Begin page
27
Publication End page
45
Publication NUmber of pages
Collections
Abstract
The capital market in which asset-backed securities are issued and traded is composed of three main categories: ABS, MBS and CDOs. The authors examined a total of 3,466 loans (worth €548.51 billion) of which 1,102 (worth €163.90 billion) have been classified as ABS. MBS issues represent 1,782 issues (worth €320.83 billion), and 582 are CDO issues (worth €64.12 billion). The authors investigated how common pricing factors compare for the main classes of securities. Due to the differences in the assets related to these securities, the relevant pricing factors for these securities should differ, too. Taking these three classes as a whole, the authors documented that the assets attached as collateral for the securities differ between security classes, but that there are also important univariate differences to consider. They found that most of the common pricing characteristics between ABS, MBS and CDO differ significantly. Furthermore, applying the same pricing estimation model to each security class revealed that most of the common pricing characteristics associated with these classes have a different impact on the primary market spread exhibited by the value of the coefficients. The regression analyses the authors performed suggest that ABS, MBS and CDOs are in fact different instruments, as implied by the differences in impact of the pricing factors on the loan spread between these security classes.