Hedging the 'One-Way CSA' Counterparty Risk in a CDO
8 Pages Posted: 28 Oct 2013
Date Written: October 26, 2013
Abstract
We show how to restructure the counterparty risk faced by the originator of a securitization or covered bond arising from an interest rate hedging swap assisted by a "one-way" collateral agreement. This risk emerges when the swap is negotiated between the special purpose vehicle and a third party that covers itself through a back-to-back swap with the originator. We show that the counterparty risk of the originator may be removed by adding a chain of back-to-back credit derivatives between the three parties (originator, counterparty and vehicle).
Suggested Citation: Suggested Citation
Giada, Lorenzo and Nordio, Claudio, Hedging the 'One-Way CSA' Counterparty Risk in a CDO (October 26, 2013). Available at SSRN: https://ssrn.com/abstract=2345710 or http://dx.doi.org/10.2139/ssrn.2345710
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