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Under a forfeit valuation of capital as a function of the amount securitized, it is relatively easy to determine whether the securitization enhances the ROE, by how much, and what are the limitations. Under full economic capital analysis, the capital results from a direct calculation with a portfolio model pre- and post-securitization.

Structuring notes requires defining the number and size of each note based on the risk characteristics of the portfolio of assets serving as collateral. The common philosophy for structuring and rating notes is to use stressed, unexpected losses to check that each class of note sustains such stresses without loss. The rating depends on the […]