Table Of ContentSecuritisation
Swaps:
A practitioner
handbook
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Securitisation
Swaps:
A practitioner
handbook
MARK AARONS
VLAD ENDER
ANDREW WILKINSON
Thiseditionfirstpublished2019
©2019MarkAarons,VladEnder,AndrewWilkinson
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LibraryofCongressCataloging-in-PublicationData
Names:Aarons,Mark,1975-author.|Ender,Vlad,1974-author.|Wilkinson,
Andrew,1979-author.
Title:Securitisationswaps:apractitioner’shandbook/MarkAarons,
VladEnder,AndrewWilkinson.
Description:Chichester,WestSussex,UnitedKingdom:Wiley,2019.|Series:
Wileyfinanceseries|Includesbibliographicalreferencesandindex.|
Identifiers:LCCN2018041666(print)|LCCN2018048782(ebook)|ISBN
9781119532347(ePub)|ISBN9781119532309(AdobePDF)|ISBN9781119532279
(hardcover)|ISBN9781119532309(ePDF)|ISBN9781119532330(ebook)
Subjects:LCSH:Derivativesecurities—Handbooks,manuals,etc.
Classification:LCCHG6024.A3(ebook)|LCCHG6024.A3A23252019(print)|
DDC332.64/57—dc23
LCrecordavailableathttps://lccn.loc.gov/2018041666
AcataloguerecordforthisbookisavailablefromtheBritishLibrary.
ISBN978-1-119-53227-9(hardback)ISBN978-1-119-53234-7(ePub)
ISBN978-1-119-53230-9(ePDF)ISBN978-1-119-53233-0(Obook)
10987654321
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Setin10/12pt,TimesLTStd-RomanbySPiGlobal,Chennai,India.
Printedin[Printercountry]by[PrinterNameandlocation]
To Suzanne, Alex, Will and Jacqui with love and gratitude
– M.A.
To Irena and Anna – you gave me support and love when I
needed it
– V.E.
To Amy, who never fails to shine a guiding light for me
– A.W.
Contents
AbouttheAuthor xiii
Foreword xv
Acknowledgements xix
CHAPTER1
Introduction 1
CHAPTER2
OverviewofStructuredFunding 5
Funding 5
FundingInstruments 7
Securitisation 8
TheSecuritisationProcess 8
StructuredFundingParticipants 9
AssetandCashFlowTransformation 16
SummaryofSecuritisation 18
MasterTrusts 18
SecuritisationandtheGFC 21
CoveredBonds 22
DocumentaryFramework 24
OfferDocument 24
SubscriptionAgreement 25
SaleAgreement 25
TrustDocumentation 25
ServicingAgreement 27
Swaps 27
AncillaryServiceProviderDocumentation 28
StructuredFundingMarkets 31
Risks 32
CreditRisk 32
MarketRisk 32
vii
viii CONTENTS
LiquidityRisk 33
PrepaymentRisk 33
ExtensionRisk 34
DowngradeRisk 34
OperationalRisk 35
LegalRisk 35
CHAPTER3
Asset-BackedDebtStructures 37
LoanPoolDynamics 37
DerivationofEq.(3.1) 38
PoolAmortisation 42
SecuritisationStructures 42
StandaloneStructureswithPass-ThroughTranches 42
StandaloneStructureswithBulletTranches 47
StandaloneStructureswithControlledAmortisationTranches 48
TrancheConservationLaws 49
MasterTrustRMBSStructures 50
CreditCardABSStructures 55
CoveredBondStructures 57
HardBullets 57
ExtendibleMaturityStructures 58
ComparisonofStructures 59
CHAPTER4
SwapsinStructuredFunding 61
AnOverviewofVanillaSwaps 61
InterestRateSwaps 61
Cross-CurrencySwaps 64
VanillaSwapPricing 66
AssetSwaps 68
LiabilitySwaps 70
StandbySwaps 72
SwapPriorityandFlipClauses 74
CHAPTER5
SwapPrepaymentRisk 79
WhatisSwapPrepaymentRisk? 79
TheExpectedSwapSchedule 80
BalanceGuaranteeSwaps 83
Contents ix
Re-Hedging 84
WhatFactorsDrivePrepaymentRates? 90
MonteCarloModellingofSwapPrepaymentRisk 91
WorkingwithaMixedMeasure 92
ModellingPrepayment 93
ModellingtheMarketRiskFactors 96
SimulationMethodology 97
Greeks,HedgingandVaR 103
ComputingGreeks 103
Hedging 104
Value-at-Risk 106
XVA 108
ComputingXVAforSwapswithPrepaymentRisk 108
IntermediatedAssetSwaps 109
MitigationStrategies 110
RiskTransfer 110
ControlledAmortisationStructures 111
ReducingPrepaymentVolatilityviaDiversification 112
DueDiligenceandSurveillance 114
DutyofContinuousDisclosure 115
Step-Ups 116
SystemIssuesandWhole-of-LifeDealManagement 116
TradeCapture 116
TradeMaintenance 117
RiskSystems 118
CHAPTER6
SwapExtensionRisk 119
WhatisSwapExtensionRisk? 119
ExamplesofExtensionRisk 121
DependenceontheCapitalStructure:StandaloneSPVs 126
ExtensionRiskinUKRMBSMasterTrusts 127
CoveredBondExtensionRisk 127
ASimplePricingFrameworkfor1-FactorStochasticFX 128
FullPricingFrameworkinaMulti-FactorSetting 132
MitigationStrategies 133
Pre-TradeStructuringversusReal-TimeHedging 133
Pre-TradeStructuring 135
Real-TimeHedging 138
StressTesting 139
