Fixed Income Instruments Credit Risk: Asset Backed Securities $($ABS$)$

I. General Concepts

$1.$ Explain the concept of securitization

$2.$ Explain the benefits of securitization for issuers and investors.

$3.$ What types of collateral can be securitized $($see also Bloomberg news on Securitized Debt, Subprime Auto and Tower Bonds$).$

II$.$ Securitization Process

$4.$ Explain why it is necessary to establish an SPV$.$ Explain the concept of "bankruptcy remoteness".

$5.$ Explain the difference between the role of the originator and the seller. It considers that there may be a conflict of interest if the same company originates and administers the credits. $6.$ Explain the concepts of tranching and subordination. How they combine to structure a class. $7.$ Explain the difference between a Mortgage pass$-$through security and a Collateralized Mortgage Obligation.

$8.$ Explain the effect of the prepayment option of a mortgage on the convexity of the YTM$-$Price function.

$9.$ Explain the concept of SMM

$10.$ Explain the difference between Contraction Risk and Extension Risk

$11.$ What are support tranches for?

$12.$ In general, explain how the uncertainty of the flows of an ABS portfolio $($defaults$,$ prepayments, priority$)$ leads to an analysis of these instruments that is different from a traditional bond with a fixed coupon $1.$