The right tools

Portfolio selection

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Despite the speed, ease and high degree of tailoring that characterise the single-tranche collateralised debt obligation (CDO), these bespoke deals remain controversial. Ratings arbitrage (Risk January 2003, page 42), credit substitution rights (Credit Risk special report May 2003, page S4) and adverse selection are just some of the problems that have troubled the buy side. So portfolio selection is a fundamental concern among investors.

Dealers are being asked to put together deals more transpar

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