The Analysis of Structured Securities

Precise Risk Measurement and Capital Allocation

Sylvain Raynes and Ann Rutledge

IThe Analysis of Structured Securities presents the first intellectually defensible framework for systematic assessment of the credit quality of structured securities. It begins with a detailed description and critique of methods used to rate asset-backed securities, collateralized debt obligations and asset-backed commercial paper. The book then proposes a single replacement paradigm capable of granular, dynamic results. It offers extensive guidance on using numerical methods in cash flow modeling, as well as a groundbreaking section on trigger optimization. Casework on applying the method to automobile ABS, CDOs-of-ABS and aircraft-lease securitizations is also presented. This book is essential reading for practitioners who seek higher precision, efficiency and control in managing their structured exposures.

The Analysis of Structured Securities

Precise Risk Measurement and Capital Allocation

Sylvain Raynes and Ann Rutledge

Description

The Analysis of Structured Securities presents the first intellectually defensible framework for systematic assessment of the credit quality of structured securities.
It begins with a detailed description and critique of methods used to rate asset-backed securities, collateralized debt obligations and asset-backed commercial paper. The book then proposes a single replacement paradigm capable of granular, dynamic results. It offers extensive guidance on using numerical methods in cash flow modeling, as well as a groundbreaking section on trigger optimization. Casework on applying the method to automobile ABS, CDOs-of-ABS and aircraft-lease securitizations is also presented.
This book is essential reading for practitioners who seek higher precision, efficiency and control in managing their structured exposures.

The Analysis of Structured Securities

Precise Risk Measurement and Capital Allocation

Sylvain Raynes and Ann Rutledge

Preface & Dedication
Part I: The Contemporary Framework
1. Market Basics
2. To Rate A Tabula Rasa
3. The Actuarial Method
4. The Default-Based ("CDO") Method
5. The Eclectic Method
Endnotes to Part I
Part II: Analyzing Structured Securities
6. Towards A Science of Ratings
7. Dynamic Asset Analysis
8. Liabilites Analysis and Structuring
9. The Average Life of Assets and Liabilities
10. PACs and TACs
Endnotes to Part II
Part III: Applications of Numerical Methods to Structured Finance
11. The Art of Mathematical Modeling
12. Statistical Probability Density Functions
13. Eigenvalues and Eigenvectors
14. Markov Chains
15. Regression Analysis
16. Lower-Upper (LU) Decomposition
17. Covariance Matrix Simulation
18. The Newton-Raphson Nonlinear Optimization Method
19. Tchebychev Polynomials
Concluding Remarks & Endnotes to Part III
Part IV: Case Studies
20. Automobile Receivable Securitizations
21. CBOs of ABS
22. Aircraft Receivable Securitizations
Endnotes to Part IV
Part V: Trigger Theory
23. Advanced Structural Features: Triggers
Concluding Remarks
Appendices

The Analysis of Structured Securities

Precise Risk Measurement and Capital Allocation

Sylvain Raynes and Ann Rutledge

Author Information

Sylvain Raynes and Ann Rutledge are the Founding Principles of R & R Consulting, a structured finance consultancy dedicated to advising issuers, investors, intermediaries, non-profit corporations, and regulatory bodies in credit risk management and structured financial techniques using fine-grained analytical methods. In July 2001, their paper "Measures of Credit Losses: A Precise Method for Calculating Risk-adjusted Return on capital" was selected for presentation by the IAFE.

The Analysis of Structured Securities

Precise Risk Measurement and Capital Allocation

Sylvain Raynes and Ann Rutledge

Reviews and Awards

"The Analysis of Structured Securitries is a much needed text book covering an important and growing segment of capital markets. The authors combine rich institutional knowledge with illustrative examples that make the topic especially accessible. For the more technically inclined there are chapters that address the modeling issues in greater detail. I recommend this text to serious students in fixed income markets." --Suresh M. Sundaresan, Chase Manhattan Bank Professor of Finance and Economics, Columbia University New York

"This is an extremely informative book. Each page is rich with institutional detail and analytical insights. The reader who masters this book will be well prepared to address the important issues in today's structured securities markets." --Perry D. Quick, Vice President, Charles River Associates

"Much has been written about structured finance and rating, but nothing compares to this truly unique book by Raynes and Rutledge. To my surprise, I could not put it down, as each chapter beckoned of more to come. The authors lay out solutions to the practical problem of rating debt securities in the structured finance context. This book is a "must read" for anyone involved in structured finance. In light of the recent market failure, securities rating is indeed of interest to many investors. In fact, this book offers fascinating reading to anyone interested in the ways we seek to predict the future." --Tamar Frankel, Professor of Law, Boston University Law School