Optimal form of retention for securitized loans under moral hazard

Artikel

We address the moral hazard problem of securitization using a principal-agent model where the investor is the principal and the lender is the agent. Our model considers structured asset-backed securitization with a credit enhancement (tranching) procedure. We assume that the originator can affect the default probability and the conditional loss distribution. We show that the optimal form of retention must be proportional to the pool default loss even in the absence of systemic risk when the originator can affect the conditional loss given default rate, yet the current regulations propose a constant retention rate.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Risks ; ISSN: 2227-9091 ; Volume: 5 ; Year: 2017 ; Issue: 4 ; Pages: 1-13 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft ; Information, Knowledge, and Uncertainty: General ; Asymmetric and Private Information; Mechanism Design ; Economics of Contract: Theory ; Information and Market Efficiency; Event Studies; Insider Trading ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: securitization ; optimal retention ; moral hazard ; tranching ; credit enhancement ; conditional loss distribution

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dionne, Georges ; Malekan, Sara
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2017

Further information

• DOI: doi:10.3390/risks5040055
• Handle: http://hdl.handle.net/10419/195784
• Last update: 10.03.2025, 11:44 AM CET