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Credit derivatives have enjoyed explosive growth in the last decade, particularly synthetic Collateralised Debt Obligations (synthetic CDOs). This book describes the state-of-the-art in quantitative and computational modelling of CDOs. Beginning with an overview of the structured finance landscape, readers are introduced tothe basic modelling concepts necessary to model and value simple credit derivatives. The modelling, valuation and risk management of synthetic CDOs are described and a detailed picture of the behaviour of these complex instruments is built up. The final chapters introduce more advanced topics such as portfolio management of synthetic CDOs and hedging techniques. Detailing the latest models and techniques, this is essential reading for quantitative analysts, traders and risk managers working in investment banks, hedge funds and other financial institutions, and for graduates intending to enter the industry. It is also ideal for academics who need to keep informed with current best practice in the credit derivatives industry.

Insight into collateral management and its increasing relevance in modern banking In the wake of recent financial crises, firms of all sizes have adjusted their policies to incorporate more frequent instances of collateral management. Collateral Management: A Guide to Mitigating Counterparty Risk explains the connection between the need for collateral management in order to alleviate counterparty risk and the actions that firms must take to achieve it. Targeted at middle and back office managers seeking a hands-on explanation of the specifics of collateral management, this book offers a thorough treatment of the subject and attends to details such as internal record management, daily procedures used in making and receiving collateral calls, and settlement-related issues that affect the movements of cash and securities collateral. An expert in financial topics ranging from trade lifecycle to operational risk, author Michael Simmons offers readers insight into a field that, so far, is struggling to produce enough expertise to meet its high demand. Presents hands-on advice and examples from a bestselling, internationally renowned author who introduces his third book on operations and operations-related activities Explains the relationship between collateral management and preventing institutional defaults, such as the recent Lehman Brothers downfall Since 2008, firms have recognized and embraced the importance of collateral management, but this book will provide practitioners with a deeper understanding and appreciation of its relevance.

Collateralized debt obligations, which are securities with payoffs that are tied to the cash flows in a portfolio of defaultable assets such as corporate bonds, play a significant role in the financial crisis that has spread throughout the world. Insufficient capital provisioning due to flawed and overly optimistic risk assessments is at the center of the problem. This paper develops stochastic methods to measure the risk of positions in collateralized debt obligations and related instruments tied to an underlying portfolio of defaultable assets. It proposes an adaptive point process model of portfolio default timing, a maximum likelihood method for estimating point process models that is based on an acceptance/rejection resampling scheme, and statistical tests for model validation. To illustrate these tools, they are used to estimate the distribution of the profit or loss generated by positions in multiple tranches of a collateralized debt obligation that references the CDX High Yield portfolio and the risk capital required to support these positions.

Asset pricing theory predicts that if credit ratings do not reflect all relevant aspects of a CDO debt tranche’s risk profile (i.e., its total and systematic risk), then ratings-based tranche pricing by some naïve investors creates incentives for CDO arrangers to take excessive non-priced risk. CDO managers’ desire for repeat issuance makes them part of this risk taking strategy to exploit naïve investors. The implication is that the credit quality of CDOs run by large market share managers has a higher tendency to deteriorate in bad times. This paper finds empirical evidence for large market share manager’s conflicts of interest.

We investigate whether a model with time-varying probability of economic disaster can explain prices of collateralized debt obligations. We focus on senior tranches of the CDX, an index of credit default swaps on investment grade firms. These assets do not incur losses until a large fraction of previously stable firms default, and thus are deep out-of-the money put options on the overall economy. When calibrated to consumption data and to the equity premium, the model explains the spreads on CDX tranches prior to and during the 2008 to 2009 crisis.

The interfacial properties of Mo[S.sub.2]/4H-SiC heterostructures were studied by combining first-principles calculations and X-ray photoelectron spectroscopy. Experimental (theoretical) valence band offsets (VBOs) increase from 1.49 (1.46) to 2.19 (2.36) eV with increasing Mo[S.sub.2] monolayer (1L) up to 4 layers (4L). A strong interlayer interaction was revealed at 1L Mo[S.sub.2]/SiC interface. Fermi level pinning and totally surface passivation were realized for 4H-SiC (0001) surface. About 0.96e per unit cell transferring forms an electric field from SiC to Mo[S.sub.2]. Then, 1L Mo[S.sub.2]/SiC interface exhibits type I band alignment with the asymmetric conduction band offset (CBO) and VBO. For 2L and 4L Mo[S.sub.2]/SiC, Fermi level was just pinning at the lower Mo[S.sub.2] 1L. The interaction keeps weak vdW interaction between upper and lower Mo[S.sub.2] layers. They exhibit the type II band alignments and the enlarged CBOs and VBOs, which is attributed to weak vdW interaction and strong interlayer orbital coupling in the multilayer Mo[S.sub.2]. High efficiency of charge separation will emerge due to the asymmetric band alignment and built-in electric field for all the Mo[S.sub.2]/SiC interfaces. The multiple interfacial interactions provide a new modulated perspective for the next-generation electronics and optoelectronics based on the 2D/3D semiconductors heterojunctions. Keywords Mo[S.sub.2], SiC, X-ray photoelectron spectroscopy, band alignment, first-principles calculations

Analyzing 916 collateralized debt obligations (CDOs), we find that a top credit rating agency frequently made positive adjustments beyond its main model that amounted to increasingly larger AAA tranche sizes. These adjustments are difficult to explain by likely determinants, but exhibit a clear pattern: CDOs with smaller model-implied AAA sizes receive larger adjustments. CDOs with larger adjustments experience more severe subsequent downgrading. Additionally, prior to April 2007, 91.2% of AAA-rated CDOs only comply with the credit rating agency's own AA default rate standard. Accounting for adjustments and the criterion deviation indicates that on average AAA tranches were structured to BBB support levels.

Two-dimensional (2D) W[S.sub.2] films were deposited on Si[O.sub.2] wafers, and the related interfacial properties were investigated by high-resolution X-ray photoelectron spectroscopy (XPS) and first-principles calculations. Using the direct (indirect) method, the valence band offset (VBO) at monolayer W[S.sub.2]/ Si[O.sub.2] interface was found to be 3.97 eV (3.86 eV), and the conduction band offset (CBO) was 2.70 eV (2.81 eV). Furthermore, the VBO (CBO) at bulk W[S.sub.2] /Si[O.sub.2] interface is found to be about 0.48 eV (0.33 eV) larger due to the interlayer orbital coupling and splitting of valence and conduction band edges. Therefore, the W[S.sub.2]/Si[O.sub.2] heterostructure has a Type I energy-band alignment. The band offsets obtained experimentally and theoretically are consistent except the narrower theoretical bandgap of Si[O.sub.2]. The theoretical calculations further reveal a binding energy of 75 meV per S atom and the totally separated partial density of states, indicating a weak interaction and negligible Fermi level pinning effect between W[S.sub.2] monolayer and Si[O.sub.2] surface. Our combined experimental and theoretical results provide proof of the sufficient VBOs and CBOs and weak interaction in 2D W[S.sub.2]/Si[O.sub.2] heterostructures. Keywords band offsets, W[S.sub.2], Si[O.sub.2], X-ray photoelectron spectroscopy, first-principles calculations

The financial market turmoil in 2007 and 2008 has led to the most severe financial crisis since the Great Depression and threatens to have large repercussions on the real economy. The bursting of the housing bubble forced banks to write down several hundred billion dollars in bad loans caused by mortgage delinquencies. At the same time, the stock market capitalization of the major banks declined by more than twice as much. While the overall mortgage losses are large on an absolute scale, they are still relatively modest compared to the $8 trillion of U.S. stock market wealth lost between October 2007, when the stock market reached an all-time high, and October 2008. This paper attempts to explain the economic mechanisms that caused losses in the mortgage market to amplify into such large dislocations and turmoil in the financial markets, and describes common economic threads that explain the plethora of market declines, liquidity dry-ups, defaults, and bailouts that occurred after the crisis broke in summer 2007.