Securitization

CFA-2 syallabus contains significant content on Securitization- namely securtities that derive their value from other assets that are held as collateral. There is an incredible amount of jargon depending on the type of collateral and the various risks that come with them. The main types of securities in this area are MBS, ABS, and CDOs. Some like MBS, have little credit risk (but have prepayment risk) and others like credit card receivables based ABS have significant credit risk. The modeling and valuation of these products poses significant challenges best addressed by financial engineers.