METHOD FOR EXECUTING A SINGLE TRANCHE SYNTHETIC ABS DERIVATIVE TRANSACTION
A Single Tranche Synthetic ABS product is designed to replicate economics returns of structured finance collateralized debt obligations (SF CDO) securities and allow parties to express a leveraged and/or correlation view on a custom ABS portfolio by transferring a credit risk of a particular transacted tranche of a portfolio in swap format. The inventions described herein account for an available funds cap risk of the ABS securities within the underlying portfolio in a manner equivalent to a cash analog based on the same underlying portfolio with sequential pay structure.
1 - 27 . (canceled)
28 . A computer implemented method comprising:
providing a single tranche derivative transaction, wherein the derivative transaction relates to a reference portfolio, and wherein the single tranche derivative transaction relates to a single transacted tranche within a capital structure including a plurality of reference tranches, including at least a transacted tranche, a mezzanine tranche, a senior tranche, and an equity tranche;
allocating a portfolio premium for the reference portfolio in a manner equivalent to distributing periodic income in a hypothetical sequential-pay cashflow securitization structure;
applying a sequential allocation of the premium payment in the capital structure; and
determining, by a processor, premium payments for the transacted tranche and each reference tranche within the capital structure.
29 . The method of claim 17 further comprising calculating, by a processor, a premium of the transacted tranche n for a time period t, when the transacted tranche comprises either the mezzanine tranche or the senior tranche, using the formula:
min
[
(
OTNA
n
,
t
*
FR
n
*
ACT
360
)
,
max
(
AAP
-
∑
n
+
1
m
RFA
t
,
0
)
]
,
wherein:
OTNA n,t is an outstanding tranche notional amount for a transacted tranche n at time t,
FR n is a fixed rate for the transacted tranche n,
ACT/360 is a day count fraction,
AAP is an aggregate asset premium,
summation index values n+1, . . . , m correspond to transacted tranches senior to transacted tranche n, and
RFA t in the n+1, . . . , m summation is a transacted tranche fixed amount for time period t for a transacted tranche corresponding to an index value.
30 . The method of claim 17 further comprising calculating, by a processor, a premium of the transacted tranche n for a time period t, when the transacted tranche comprises an equity tranche, using the formula:
max
(
AAP
-
∑
n
+
1
m
FA
t
,
0
)
,
wherein:
AAP is an aggregate asset premium
summation index values n+1, . . . m correspond to transacted tranches senior to transacted tranche n, and
FA t in the n+1, . . . , m summation is a fixed amount for time period t for a transacted tranche corresponding to an index value.
31 . The method of claim 19 wherein the premium is paid in an impaired equity tranche despite full or partial impairment.
32 . The method of claim 18 further comprising calculating, by a processor, the premium of the transacted tranche, when the transacted tranche comprises either the mezzanine tranche or the senior tranche, using the formula:
min
[
(
S
i
*
OTW
i
*
IPS
*
ACT
360
)
,
max
(
AAP
t
-
∑
i
+
1
m
RFA
t
,
0
)
]
,
wherein:
S i is a reference tranche spread for reference tranche i,
OTW i is an outstanding tranche width for reference tranche i,
IPS is an initial portfolio size, and
AAP t is an aggregate asset premium for time period t.
33 . The method of claim 21 further comprising calculating, by a processor, the outstanding width of the transacted tranche using the formula: max[min(OPP, X, i+1)-max(X i , ALP),0], wherein:
OPP is an outstanding portfolio percentage,
X i+1 is a reference tranche detachment for reference tranche i,
X i is a reference tranche attachment for reference tranche i, and
ALP is an aggregate loss percentage.
34 . The method of claim 21 further comprising calculating, by a processor, an aggregate portfolio premium using the formula:
PRS
*
OPS
t
*
ACT
360
,
wherein:
PRS is a portfolio reference spread, and
OPS t is a sum of outstanding portfolio size on each day in time period t, divided by number of days in time period t.