Market Graphic - How to hedge an ABS portfolio
For investors stuck with toxic ABS assets on their books, devising an effective hedging strategy is crucial. Jean-David Cirotteau and Marc Teyssier, analysts at SG, look at one such strategy
ABS instruments - particularly in Europe - are not liquid assets, as the evolution of the current crisis has shown. Some market participants, who noticed this considerable inconvenience fairly early, decided to totally liquidate their positions when levels became critical. But not all portfolios have been liquidated.
In our research into how to hedge an ABS portfolio, we focus here on prime UK RMBS, specifically Permanent Master Issuer PLC series 2007-1 tranche 3A - a single-name ABS.
To implement
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