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Structured Finance and Collateralized Debt Obligations: New Developments in Cash and Synthetic Securitization 2nd Edition

by Janet M. Tavakoli (Author)
4.0 out of 5 stars 19 ratings
An up-to-date look at the exploding CDO and structured credit products market

In this fully updated Second Edition, financial expert Janet Tavakoli provides readers with a comprehensive look at the CDO and structured credit products market amid recent developments. In addition to a detailed overview of the market, this book presents key issues in valuing structured financial products and important quality control issues. Tavakoli shares her experiences in this field, as she examines important securitization topics, including the huge increase in CDO arbitrage created by synthetics, the tranches most at risk from new technology, dumping securitizations on bank balance sheets, the abuse of offshore vehicles by companies, the role of hedge funds, critical issues with subprime, Alt-A, and prime mortgage securitizations, and securitizations made possible by new securitization techniques and the Euro. While providing an overview of the market and its dynamic growth, Tavakoli takes the time to explore the types of products now offered, new hedging techniques, and valuation and risk/return issues associated with investment in CDOs and synthetic CDOs.

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  1. ISBN-10
    0470288949
  2. ISBN-13
    978-0470288948
  3. Edition
    2nd
  4. Publisher
    John Wiley & Sons Inc
  5. Publication date
    January 1, 2008
  6. Part of series
    Tavakoli Finance
  7. Language
    English
  8. Dimensions
    6.25 x 1.25 x 9.25 inches
  9. Print length
    453 pages
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Editorial Reviews

From the Inside Flap

The structured finance landscape has changed radically in the last several years, especially when it comes to collateralized debt obligations (CDOs). New technologies, tools, and products have opened the door to many profitable opportunities within this market, and an equal number of debacles have arisen due to misunderstandings, misuse, and outright fraud. In order to achieve success and use structured technology in a beneficial fashion???as well as avoid potential pitfalls???you need to gain a firm understanding of how to operate within such a dynamic environment.

That's why financial expert Janet Tavakoli has created Structured Finance and Collateralized Debt Obligations, Second Edition. Filled with in-depth insights and practical advice, this updated guide provides you with everything you need to value structured financial products. Incorporating a comprehensive overview of the CDO market and the elements of structured finance amid recent developments, Tavakoli provides the substance necessary to evaluate structured products???while making clear that mechanical models most often used by institutions and professionals have critical shortcomings. The models, she asserts, will inevitably fail if one does not understand how to evaluate fundamental value and handle quality control.

Chapter by chapter, Tavakoli shares her extensive experiences in this field, as she explores important securitization topics, including cash versus synthetic arbitrage CDOs; recent changes in the CDS market posed by CDSs on asset-backed securities (CDSs of ABS); synthetic indexes; subprime and Alt-A securitization; the role of hedge funds in this arena; securitizations made possible by the emergence of the Euro; and much more.

Along the way, Tavakoli takes the time to detail the different types of products now available, highlight new hedging techniques, and outline various valuation and risk/return issues associated with investing in CDOs and synthetic CDOs. She also looks at some instances of fraud and what can be done to recognize and remedy such situations, and focuses on some gray areas of opportunity presented by today's structured products.

Written with the serious financial professional in mind, Structured Finance and Collateralized Debt Obligations, Second Edition skillfully puts this discipline in perspective. It sheds much-needed light on how existing structuring technology has benefited new markets and has the potential to create even better products???and it provides a clearer understanding of these products so that you can confidently participate in this market and make more-informed decisions within it.

From the Back Cover

Praise for Structured Finance & Collateralized Debt Obligations Second Edition

"Janet Tavakoli warned the world this disaster was coming well in advance. Now she explains it again for those who did not listen before as well as why it is not over yet. You need to read this book to understand the biggest credit bubble in world history."
 Jim Rogers, author of A Bull in China, Hot Commodities, Adventure Capitalist, and Investment Biker

"Janet Tavakoli's new book provides an insider view into the opaque world of structured finance and collateralized debt obligations. With its clear explanations of numerous structured-finance innovations, I expect this book to become the 'Rosetta Stone' for deciphering these markets. This book is a service to the investment community."
 Hilary Till, Cofounder, Premia Capital Management, LLC

"Janet Tavakoli explains the complex world of structured finance with unusual flair and colorful anecdotes from securitization's front lines. An indispensable and up-to-date guide for anyone seeking greater understanding of the CDO market."
 Charles C. Henneman, CFA, Head, Educational Programs and Events, CFA Institute

"Janet Tavakoli has been able to dissect, with a brisk style, the intricacies of many structured products. Not only does she explain in a clear and insightful manner how certain things work, but more important, why others do not work!"
 Arturo Cifuentes, PhD, Managing Director, R.W. Pressprich & Co.

"Stan O'Neal, Marcus Ospel, and more than a few other bold-face names in finance might still have jobs if they'd taken the trouble to read this book. Janet Tavakoli takes the complexities of today's derivatives markets and makes them both comprehensible and digestible for everybody from the practitioner to the interested observer."
 Greg Newton, Founding Publisher, MAR/Hedge

"Janet Tavakoli is exceptional in having worked extensively both in mortgage securitization and structured credit at major financial institutions. In this clearly written book, she shares her in-depth knowledge of structuring, valuation, and risk management of structured products. This book is a must read for regulators and risk managers to keep up with the latest developments in structured finance."
 Joseph Masri, PhD, Barclays Global Investors, Regional Director, Professional Risk Managers' International Association (PRMIA)

Product details

  • Publisher ‏ : ‎ John Wiley & Sons Inc; 2nd edition (January 1, 2008)
  • Language ‏ : ‎ English
  • Hardcover ‏ : ‎ 453 pages
  • ISBN-10 ‏ : ‎ 0470288949
  • ISBN-13 ‏ : ‎ 978-0470288948
  • Item Weight ‏ : ‎ 1.56 pounds
  • Dimensions ‏ : ‎ 6.25 x 1.25 x 9.25 inches
  • Customer Reviews:
    4.0 out of 5 stars 19 ratings

About the author

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Janet M. Tavakoli

Janet M. Tavakoli

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Janet Tavakoli is the president of Tavakoli Structured Finance, a derivatives risk consulting firm for financial institutions. She has worked as a chemical engineer, earned her MBA from the University of Chicago, taught derivatives as an adjunct associate professor of finance at the University of Chicago's Booth Business School (Graduate School of Business), and worked for Wall Street firms in New York, Tokyo, and London. She was born and raised in Chicago, Illinois, lived in Iran during the Islamic revolution, lived in New York for a decade, lived in London for several years, and has traveled extensively for business and pleasure in Europe and Japan.

She is the author of Credit Derivatives (Three editions; Wiley 1998, 2001, and Lyons McNamara 2022), Risk (2016), Decisions: Life and Death on Wall Street (2015), , Structured Finance & Collateralized Debt Obligations (Wiley 2003, 2008), and Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street, (Wiley 2009).

The New Robber Barons (Lyons McNamara, 2013), is a compilation of her web-based commentaries since the September 2008 financial crisis through February 2012.

Archangels: Rise of the Jesuits (Lyons McNamara, 2013) is her financial-fiction debut thriller.

Unveiled Threat: A Personal Experience of Fundamentalist Islam and the Roots of Terrorism (Lyons McNamara, 2014) is a non-fiction thriller and commentary.

Ms. Tavakoli is frequently quoted in the Wall Street Journal, Financial Times, New York Times, Business Week, Bloomberg News. Television appearances include CBS's 60 Minutes, CNN, C-Span, CNBC, BNN, CBS Evening News, Bloomberg TV, Fox, ABC, and BBC.

Trade books: www dot tavakolistructuredfinance dot com

Novels: www dot janettavakoli dot com

Customer reviews

4 out of 5 stars
19 global ratings

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Top reviews from the United States

  • A. J. Sutter
    5.0 out of 5 stars Informative, acerbic and fun look at credit derivatives
    Reviewed in the United States on December 12, 2008
    Verified Purchase
    I echo the praises of this book sung by previous reviewers. But I can also say in all sincerity that this is the most fun book I can ever recall reading about finance.

    The book isn't an overview of the current credit crisis per se, but a detailed look at some of the building blocks that came tumbling down (as well as some that might collapse in the future, such as total-rate-of-return (TRO) swaps). It's addressed to a professional audience, so if you're shy about reading books with some equations you might not enjoy it so much. Most of these are pretty simple, though, and none involve calculus.

    Still, I'd recommend that you not be put off by the quantitative bits and professional terminology. To a greater extent than most other finance books, Tavakoli uses diagrams to explain the deal structures. The pictures aren't always understandable separately from the text, but they are generally very lucid and valuable. Most importantly, interspersed with the material for practitioners are extended narrative, historical and critical passages, which will give you an insider's insights into the role human nature plays in quantitative finance. Although she's a financial professional herself, Tavakoli isn't afraid to call 'em how she sees 'em, often with a bit of appropriate cynicism, e.g. "Hedge funds have made massive leveraged credit bets, knowing that their upside is billions in fees and their downside is millions in fees" @ 430. I even laughed out loud in a couple of places, which was a personal first for a book of this genre.

    Occasionally Tavakoli uses terminology that isn't explained until later (such as "value at risk" (VaR), which is mentioned @ 87 but not explained until the next chapter, @ 94ff); unfortunately, the index is an erratic aid in this situation (e.g., VaR's first entry in the index is for page 97). But these are very minor quibbles, and shouldn't discourage you from reading this terrific book.
    33 people found this helpful
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  • Juan Espina
    5.0 out of 5 stars A Must Read for Practitioners, Regulators and anyone interest in the field
    Reviewed in the United States on November 5, 2008
    Janet Tavakoli has done a great job with her latest edition of Structured Finance and CDOs. This is a must read for anyone trying to understand these markets and the human factor behind the deals that have turn sour in the recent events of the US housing and global credit crises. Great timing for a revised edition!

    It is a known fact that the structured finance world has changed dramatically after the recent events but it won't cease to exist. As Ms. Tavakoli puts it, structured finance allows for the creation of synthetic deals than can and will continue to be used for valid business purposes but can also be used, and will continue to be used, as instruments to defraud investors in many instances, hence the call for regulatory bodies that can keep up with the manufacturing of complex financial structures and the way the market players interact driven by greed.

    The book doesn't give the reader the answer to the current crisis but it definitely serves as a tool to understand it and craft an educated guess of how and why things happened they way they did. If you are new to the field let Ms. Tavakoli, a real and experienced practitioner, walk you through the inner workings of the industry; you won't regret it.
    5 people found this helpful
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  • Amazon Customer
    3.0 out of 5 stars Not well edited
    Reviewed in the United States on July 11, 2019
    Verified Purchase
    I agree with an earlier reviewer - the problem with the book is not so much that the author doesn’t know and communicate the subject matter, nor that her thoughts on how the structures can be misused aren’t interesting and insightful. The main issue is that the editing is very poor - there are many instances where the book talks about topics which won’t be defined until much later, and it often veers between being very general and very specific.
    2 people found this helpful
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  • Dynamic Duo
    5.0 out of 5 stars THE ONLY STRUCTURED FINANCE BOOK YOU WILL EVER NEED
    Reviewed in the United States on September 10, 2008
    If you are going to buy only one book on this topic, this is the one to buy.

    First, it covers all the critical aspects of structured products: quantitative, qualitative, legal, etc.

    Second, it provides an insightful analysis that makes it easy to grasp the issues behind the current financial crisis [What, Why & Who]

    Third, it is written by somebody who understands the topics and has done the stuff (NOT by somebody who talked to somebody who thinks is an expert, but cannot know for sure because he(or she) does not really know the topic well).

    Fourth, it is written in a style that is fresh and engaging, but precise: neither the pedantic language of some academics nor the infantilizing language of some amateurish journalists.

    Chapter 17 (The Credit Crunch and CDOs) is a MUST for anyone involved in the structured products market.

    ARTURO CIFUENTES
    15 people found this helpful
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  • Hilary F. Till
    5.0 out of 5 stars Rosetta Stone
    Reviewed in the United States on September 12, 2008
    This book provides an insider view into the opaque world of structured finance and collateralized debt obligations. With its clear explanations of numerous structured-finance innovations, I expect this book to become the "Rosetta Stone" for deciphering these markets.

    In addition, the book includes a lot of nuggets of wisdom on applying a value-investor discipline to structured finance. This is something that I hadn't expected since the complexity of structured-finance instruments would give one the impression that this field is (and was) only a realm for rocket scientists. For example, in Chapter 5, Janet Tavakoli describes "The Leverage Paradox" whereby levering up equity (or even commodity) positions that are deeply distressed can make sense as a systematic strategy since the dramatic returns for correct bets can compensate for the inevitable downturns from such a strategy. But when leverage is applied to non-distressed debt securities, as was the fashion during the credit boom, disastrous results can (and did) happen with any air-pocket in the market, whether it is because of isolated cases of fraud or temporarily difficult liquidity conditions.
    10 people found this helpful
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Top reviews from other countries

  • Salvo
    2.0 out of 5 stars More informative and anecdotical than educational
    Reviewed in Germany on May 25, 2021
    Verified Purchase
    More informative and anecdotical than educational
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