The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Capital Markets

The cash CDO pricing puzzle

Tensions between front and back offices over how to price cash CDOs are preying on some industry data providers’ minds.

Be it via evaluated or contributed pricing services, cash CDOs are seen as the “big problem” when it comes to getting accurate price quotes in the securitization market. Synthetic CDO tranches can be priced on a correlation basis but cash CDOs are a far more tricky proposition. “If cash CDOs are actively managed and the collateral is constantly changing it is very difficult to accurately value them,” observed Ian Blance of FT Interactive Data at a recent European Securitisation Forum seminar on the topic. “If there is one asset out there that only has one price available it will be a cash CDO.”

One of the problems is that deals in the CDO market are far smaller than in the wider ABS market – you just don’t get €5 billion benchmark trades to price deals off. “There is an inherent liquidity issue within the CDO market,” Edward Cahill, head of CDOs in Europe at Barclays Capital tells Euromoney. “Deals are just not big enough.” And, because they are small, most cash CDOs will only have one lead manager making a price as opposed to larger ABS trades that will have two or three lead managers.

Cahill points out that, despite the illiquid nature of the market, cash CDO tranches are reasonably straightforward to price.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree