8. Collateralized Debt Obligations

i. describe collateralized debt obligations, including their cash flows and risks.

What is a collateralized debt obligation (CDO)? Collateralized debt obligations (CDOs) are a type of structured asset-backed security (ABS) with value and payments derived from a portfolio of fixed-income underlying assets.

What are the three differenty types of tranches for CDOs? - A senior tranche: between 70% and 80% of the deal and receives a floating-rate payment - Subordinated or mezzanine tranches: receive a fixed coupon rate - Equity tranche: provides equity protection to other tranches.

What is a Cash CDO? Cash CDOs involve a portfolio of cash assets, such as loans, corporate bonds, asset-backed securities or mortgage-backed securities.