COLLATERALISED DEBT OBLIGATIONS

Clarification on Whether Synthetic Collateralized Debt Obligations (CDO) Include Embedded Credit Derivatives

Clarification on Whether Synthetic Collateralized Debt Obligations (CDO) Include Embedded Credit Derivatives

Introduction

This essay is based on clarification on whether synthetic collateralized debt obligations (CDOs) include embedded credit derivatives. Yes, it's true that some features of collateralized debt obligations (CDOs) are embedded credit derivatives. CDO is secured by a pool of assets including bank loans generally bonds obligations. So these are debt securities issued by a special purpose vehicle, called securitization vehicle that buys and holds bonds issued by corporations or banks. Embedded credit derivatives are financial instruments whose ...