Structural modelling of subprime mortgages

Unlike past housing market cycle downturns, this one has caused havoc in financial markets, through write-offs on securities linked to subprime mortgages. There is plenty of blame to go around.1 Investors have chased after ever-higher yields to their investment and investment bankers have provided collateralised debt obligations (CDO) of subprime mortgages to satisfy that demand. Lenders, who have supplied collateral to investment bankers, may have made subprime mortgage loans to borrowers who would...

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