dajieda0 (November 30, 1999 at 12:00 am)

my lecturer did really did a good job on this topic...

dajieda0 (November 30, 1999 at 12:00 am)

@austinacmes you are right. Thanks.

dajieda0 (November 30, 1999 at 12:00 am)

why senior tranches like low correlation assets while subordinate tranches prefer high correlation?

donttrythis55 (November 30, 1999 at 12:00 am)

why does the bank originator keep equity on it's balance sheet? I understand the different tranches but what do you mean by equity? When you have excess spread does that mean the purchase price less principal and interest? Thanks

PionnerDU (November 30, 1999 at 12:00 am)

Hi there It would be so grat and helpfull to add the chapter to the title since you are using John Hull... many student are having hard time understanding some of these chapter so it will be great if you have that. Thank You so much your video help me alot but sometimes it is so hard to find some of the stuff..that relate to the chapter. I will be very soon one of your student

austinacmes (November 30, 1999 at 12:00 am)

@dayzman It is because subordinated tranches are the first ones to absorb the losses of the portfolio. Low default correlation among the assets means over a period of time, one or two names default won't pull the whole portfolio under water. Therefore, the sub tranches will always be the first ones to absorb these losses. The senior tranche, however, with a low default correlation among the assets, can use these sub tranches as cushions. The reverse is true when the default correlation is high.

dayzman (November 30, 1999 at 12:00 am)

@austinacmes I wonder about this too. Anyone?

TaylorWmh (November 30, 1999 at 12:00 am)

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austinacmes (November 30, 1999 at 12:00 am)

Hi David, great video. I have a question while watching this video. hope you don't mind answering. Why would a low default correlation among the originator's assets will hurt the subordinated tranches?