Structured Credit and Credit Derivatives
Free GARP FRM Part II lesson in Credit Risk Measurement and Management. 23 min read, ~3,469 words.
Tranching redistributes pool losses across senior, mezzanine, and equity tranches via a waterfall; equity absorbs first. Each tranche has its own attachment point, detachment point, and credit rating. Default correlation drives senior-tranche risk: senior is long correlation, equity short, mezzanine mixed. Higher correlation makes pool losses bimodal (small or catastrophic)...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
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