Structured Credit and Credit Derivatives
Free GARP FRM Part II lesson in Credit Risk Measurement and Management. 22 min read, ~3,370 words.
Tranching redistributes pool losses across senior, mezzanine, and equity tranches via a waterfall. Each tranche has a different attachment point, detachment point, and credit rating. Default correlation drives senior-tranche risk. Low correlation makes senior tranches close to risk-free; high correlation makes them act like mezzanine. Excess spread, overcollateralization, and subordination...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
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