More aggressive CLO pricing assumptions are justified, says RBS

Friday, December 14, 2012

RBS has pubished its outlook for CLOs next year and has taken a look at pricing assumptions used by new CLOs

Comment by: Anonymous. Posted 11 years ago [2012-12-20 19:12:23]

Clearly RBS has no conflict of interest in talking up the new issue in search for cheaper senior funding. Flat rate default assumption on its own is misleading, from both risk and return perspective, normalizing the cash flow through the economic cycles.

Comment by: Anonymous. Posted 11 years ago [2012-12-15 14:15:49]

RBS may have valid arguments for expected future defaults, prepays, recoveries, and spreads. But other considerations are far more important in CLO tranche fair value and risk assessment. These considerations include the uncertainty in all the performance parameters as well as appropriate premium for risk and illiquidity. There are "unsolved problems" here that defy models and mathematical techniques.

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