Pricing Credit Risk of Asset-Backed Securitization Bonds in Singapore
Asset-backed securitization (ABS) is a creative arrangement to raise funds through the issuance of marketable securities backed by predictable future cash flows from revenue-producing assets. This paper proposes two pricing models: structural model and intensity model, to value credit spreads on Sin...
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sg-smu-ink.lkcsb_research-37172016-02-12T09:35:15Z Pricing Credit Risk of Asset-Backed Securitization Bonds in Singapore Sing, T.F. Ong, S.E. Fan, Gang-Zhi Lim, Kian Guan Asset-backed securitization (ABS) is a creative arrangement to raise funds through the issuance of marketable securities backed by predictable future cash flows from revenue-producing assets. This paper proposes two pricing models: structural model and intensity model, to value credit spreads on Singapore ABS bonds. Sensitivity analyses were conducted on the ABS credit spreads by varying the values of the key input variables within a plausible range. The property price volatility and its correlations with risk-less interest rates have been shown to have positive effects on the ABS credit spreads. However, when the market volatility is extremely high, the credit spreads decrease with an increase in the time to maturity. The positive effects of the property price volatility were significantly reduced when credit enhancements were added to the ABS bonds, and the credit risks associated with the correlation variable were fully eliminated in the credit enhanced ABS bonds. The rate of loss recovery in the event of default also has significant impact on the credit risks of the ABS bonds. ABS bonds backed by physical property will likely to have high recovery rates thus reducing the credit risks vis-α-vis non-collateralized bonds. [ABSTRACT FROM AUTHOR] 2005-05-01T07:00:00Z text https://ink.library.smu.edu.sg/lkcsb_research/2718 info:doi/10.1142/S0219024905003050 Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Finance and Financial Management Portfolio and Security Analysis |
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Finance and Financial Management Portfolio and Security Analysis Sing, T.F. Ong, S.E. Fan, Gang-Zhi Lim, Kian Guan Pricing Credit Risk of Asset-Backed Securitization Bonds in Singapore |
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Asset-backed securitization (ABS) is a creative arrangement to raise funds through the issuance of marketable securities backed by predictable future cash flows from revenue-producing assets. This paper proposes two pricing models: structural model and intensity model, to value credit spreads on Singapore ABS bonds. Sensitivity analyses were conducted on the ABS credit spreads by varying the values of the key input variables within a plausible range. The property price volatility and its correlations with risk-less interest rates have been shown to have positive effects on the ABS credit spreads. However, when the market volatility is extremely high, the credit spreads decrease with an increase in the time to maturity. The positive effects of the property price volatility were significantly reduced when credit enhancements were added to the ABS bonds, and the credit risks associated with the correlation variable were fully eliminated in the credit enhanced ABS bonds. The rate of loss recovery in the event of default also has significant impact on the credit risks of the ABS bonds. ABS bonds backed by physical property will likely to have high recovery rates thus reducing the credit risks vis-α-vis non-collateralized bonds. [ABSTRACT FROM AUTHOR] |
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text |
author |
Sing, T.F. Ong, S.E. Fan, Gang-Zhi Lim, Kian Guan |
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Sing, T.F. Ong, S.E. Fan, Gang-Zhi Lim, Kian Guan |
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Sing, T.F. |
title |
Pricing Credit Risk of Asset-Backed Securitization Bonds in Singapore |
title_short |
Pricing Credit Risk of Asset-Backed Securitization Bonds in Singapore |
title_full |
Pricing Credit Risk of Asset-Backed Securitization Bonds in Singapore |
title_fullStr |
Pricing Credit Risk of Asset-Backed Securitization Bonds in Singapore |
title_full_unstemmed |
Pricing Credit Risk of Asset-Backed Securitization Bonds in Singapore |
title_sort |
pricing credit risk of asset-backed securitization bonds in singapore |
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Institutional Knowledge at Singapore Management University |
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2005 |
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https://ink.library.smu.edu.sg/lkcsb_research/2718 |
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1770570534515376128 |