Abstract
In times of low yields of single corporate names in cash and in corporate debt securities, the search for yield has directed investors9 and structurers9 attention to increasingly complex structures. The single-tranche collateralized debt obligation (CDO) has given way to the single-tranche CDO of CDOs, better known as CDO2. To understand the risk/reward profile of CDO2 securities, the authors investigate their default/loss distribution and correlation sensitivity. The article also illustrates the resilience of the different attachment points of the CDO2 to defaults in the underlying exposure pool and compares that to the “more traditional” single-tranche CDO.
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