Synthetic ABS is hot property

The emergence of credit default swaps on ABS has led to the development of an index of these securities. Nadia Damouni looks at the prospects for this rapidly evolving corner of the market

In the pre-derivatives world, investors in mortgage-backed securities or real-estate asset-backed securities had two options: either to buy particular pools of collateral, or not to buy them. Shorting a position or buying protection were out of the question.

But by mid-2005 those limitations had changed as investors welcomed the birth of credit default swaps on asset-backed securities, known colloquially as ABCDS. These new synthetic instruments acted as credit default swaps on individual home