Structured Finance Course Outline

8/10/2019 Structured Finance Course Outline

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Structured Finance

Objectives

Structured Finance is the design of debt, equity and hybrid financing techniques in orderto resolve particular issuer or investor problems that cannot be solved by conventional

methods. To put it simply, whatever is not available off-the-shelf we can create a tailor-

made financial solution which will be called a structured product.

Structured Products originates from the mid-seventies in US when the process of

securitiation started. From the nineties there had been a deluge of different types of

structured securities in the mar!et in the form of credit derivatives and different credit-lin!ed notes. "n the early years of this century we have seen the advent of #$%s and

other advanced structured products. "n the recent past, these structured products have

earned a lot of bad name due its lin!age with the crisis-laden investment ban!s in the&all Street. 'owever, we understand now that it was not the product itself that was to be

blamed but the disclosure of the underlying ris!s and other human elements which wereprimarily responsible.

This course focuses on identifying situations that call for nonstandard corporate finance

solutions and the design and pricing of the situation-specific financing instruments.

$uring the course securitiation concept will be discussed in-depth and students willunderstand the various situations where this instrument or process will be preferred.

#redit derivatives and its offshoots will be analyed at length. "n the later stages the

advanced products li!e #$%s and #()s will be ta!en up. The course also aims to e*posethe students the underlying ris!-return trade-off and the economics of the products and

the solutions. The causes of recent global financial crises will be analysed threadbare and

policy level issues emerging from that will be ta!en up for discussion. The structuringand pricing of the products+the concepts and methods+will also be covered.

Pedagogy

The course will employ cases and original research wor!s as well as classroom lectures

and discussions, to offer a hands-on learning e*perience. &e will ma!e use ofinternational as well as domestic e*amples. ach student will be e*pected to prepare

thoroughly and to participate actively in class discussion. Since its an advanced course

students will be encouraged to read research articles on the subect in addition to

prescribed te*tboo!s. ach student has to write an essay on a related topic to structuredproducts which the instructor will discuss in the class.

Components of Evaluation

/id-term 0 1234ssignment 0 123

nd-term e*am 0 523


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Reference Books:

6. "ntroduction to Structured Finance0 Faboi 7"SF89. /odeling Structured Finance #ash Flows with /icrosoft *cel0 4 Step-by-

Step :uide- ;eith 4llman 7enefits of a Securitiation to "nvestors

&hat ?ating 4gencies (oo! at in ?ating

4sset >ac!ed Securities

$escription of a #ollateral

Prepayments /easures

$efaults @ $elinquencies

Reading: #h 6, 5 @ A 7Faboi8

4 Primer on Structured FinanceAndreas A. Jobst (IMFWorking Paper)Securitiation- :ary :orton @ 4ndrew /etric! 7)>? &or!ing Paper

6BC668

"ndian Securitisation /ar!et+Dinod ;othariThe dar! side of the moon0 structured products from the customerEs

perspective --Thorsten 'ens /arc %liver ?ieger 7February, 922, "S>,

University of Gurich8

The Structured Finance /ar!et0 4n "nvestorEs Perspective+Faboi7Financial 4nalysts Hournal, Dol. C6, )o. 1 /ay - Hun., 922A8

Case: nron %ddesy and SP-'>S #ase Study

%ideo:nron the Smartest :uys in the >oardroom

Session # " &


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Financial Crisis in post #''( era

&hat caused Financial #risis in 922I-2

?ole of Structured Products in Financial #risis

'idden ?is!s in Structured Finance /ar!et

Reading:

Structured Finance and the Financial Turmoil of 922I-922B0 4n "ntroductory %verview--

Sarai #riado and 4drian van ?i*tel 7>an! of Spain, %ccasional Paper8The conomics of Structured Finance---Hoshua $. #oval, Ha!ub Hure! @

ri! Stafford 7'>S &or!ing Paper8

:lobal Financial #rises and the Future of Securitiation- /athis, Toolino @?amaswamy 7'>S )ote8

Subprime /eltdown 0 4merican 'ousing and :lobal Financial Turmoil J Hulio

?otemberg 7'>S )ote8

)K Fed ?eport on Subprime Securitiation

Cases: >ear Sterns and the seeds of the demise-'>S #ase Study

The ?ise and Fall of 4": J ?ichard "vy School #ase Study

%ideos:#ity Uncovered 76-18

"nside Hob 7film8

Session ) " *

Credit +erivatives

$ocumentation @ #redit $erivative Terms #redit $efault Swaps

#redit $efault Swap "nde*

>as!et $efault Swaps

4sset Swaps

Total ?eturn Swaps

conomics of a Total ?eturn Swap

Reading: #h 1 7Faboi8

4 >eginnerEs :uide to #redit $erivatives--- )oel Daillant 7)omura"nternational8

"ntroduction to #redit $erivatives+Dinod ;othari (Sl. Nos.- 11,12)

#redit derivatives and structured credit0 the nascent mar!ets of 4sia and the

Pacific--li / ?emolona @ "lhyoc! Shim 7>"S Luarterly ?eview, Hune, 922B8

4n %verview of #redit $erivatives+'>S /aterial

)ote on #redit $erivatives+'>S /aterial


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Credit Default Swap Index Options--Evaluating the viability ofa new product for the CBOE----/i!e Ha!ola 7 ;ellogg School of/anagement, )orthwestern University, Hune, 922C8

mergence of #$S"+Stanford >usiness School /aterial

Case: First 4merican >an! #redit $efault Swaps,'>S #ase Study

Session -

Cas. Flo/ Collateri0ed +ebt Obligations

Family of #$%s

>asic Structure of a #ash Flow #$%

#$%s and Sponsor /otivation

#ompliance Tests

Reading:#h C 7Faboi8

4># of #$%+#?"S"( $ocument

The >arclays #apital :uide to #ash Flow #ollateralied $ebt %bligations

#$%s+'>S /aterial#(%0 4 Primer--- 4ndreas Hobst 7(S &or!ing Paper, 922I8

Session (

Synt.etic Collateri0ed +ebt Obligation Structures

/otivations for Synthetic #$%s

/echanics

Funding /echanics

"nvestor ?is!s in Synthetic Transactions

Dariations in Synthetic #$%s

The Single-tranche Synthetic #$%

Summary of the 4dvantages of Synthetic Structures

Factors to #onsider in #$% 4nalysis

Reading: #h I 7Faboi8Understanding the ?is! of Synthetic #$%s--/ichael S. :ibson 7Federal

?eserve, US4, 92258

The )ormal "nverse :aussian $istribution for Synthetic #$% Pricing---4nna ;alemanova, >ernd Schmidy @ ?alf &erner 7 Hournal of

$erivatives, Spring, 9227)

"ssues in the Pricing of Synthetic #$%s#hristopher #. Finger7?is!metrics &or!ing Paper 92258


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Synthetic #$%0 4n "ntroduction+(aurie :oodman

/oodyEs 4pproach To ?ating Synthetic #$%s

Daluation of a #$% and an nth to $efault #$S &ithout /onte #arloSimulation--Hohn 'ull and 4lan &hite 7Hournal of $erivatives, 92258

Session (

Securiti0ed and Synt.etic 1oney 1arket Funding Structures

#ommercial Paper

4sset->ac!ed #ommercial Paper

Synthetic-Funding Structures

Reading: #h A, C, 15 7Faboi8

Synthetic securitiation0use of derivative technology for credit transfer---$an

>ell and Petrina $awson 7Standard and Poor, urope8#onventional versus Synthetic SecuritisationJ Trends in the :erman 4>S

/ar!et --$r./artin >Mhringer,Ulrich (ot, #hristian Solbach,Hochen &entler2Deloitte & ouche !er"any# $%%';ey issues in structuring a synthetic securitisation transaction--liabeth

Uwaifo and /ar! " :reenberg2Sidley 4ustin >rown @ &ood8

Session 3

Credit4inked 5otes

$escription of #()s

"llustration of #()

"nvestor /otivation

Settlement

Forms of #redit (in!ing

The First -to- $efault #redit (in!ed )ote

Reading: C. 6 2Fabo00i7

#redit-(in!ed )otes0 4 Product Primer---Fran! H . Faboi , 'enry 4 . $avis ,

and /oorad #houdhry 2The Hournal of Structured Finance922I,Dol. 69, )o.58

ffect of 4sset Dalue #orrelation on #redit-lin!ed )ote Dalues ----#. '. 'ui

7"nternational Hournal of Theoretical and 4pplied Finance Dol. A, )o. A, 92298

Session 3

Structured 5otes

Structured )otes $efined

/otivation for "nvestors @ "ssuers

"ssuance Form and "ssuer


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#reating Structured )otes

*amples of Structured )otes

Reading: #h 62 7Faboi8

4natomy of Structured Finance /ar!et( #rabbe, H$ 4rgilagos - Hournal of4pplied #orporate Finance, 7658Structured note mar!ets0 products, participants and lin!s to wholesale

derivatives mar!ets ---$avid ?ule and 4drian :arratt, Sterling /ar!ets

$ivision, and %le ?ummel, Foreign *change $ivision 7>an! of ngland8

Case0 Structured )otes J $earden #ase Study

Session 6!!

Structuring Concepts in Securiti0ation

#reating 4sset Side of the #ash Flow

/atching the (iability with the 4sset Side

*cel /odeling

Reading: C. !3 28ltman7

Session !#!)

Case Studies in Structured Finance

Formula %ne

Tata Steel #4?S ?efinancing &estern 'arbour #rossing in 'ong ;ong

4thens ?ing ?oad

The >ourland />S

Session !*#'

9uest Faculty Sessions

Structured Finance from >an!ers Perspective 7/r. Saurabh >hat 5

sessions8

?ating 4gencys Perspective 7#?"S"( 9 sessions8


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Documents

Structured Finance Course Outline