Best Response
mb666:
Amphipathic:
A MBS are not derivative, it's a pool of asset (mortgages) that has been securitized.

Not sure if you're joking...

But yes MBS are backed by other assets (mortgages) and therefore are derivatives.

No, I am not joking. An MBS is a type of ABS, and therefore a security, not a derivative. The definition for securitization makes it sound like a derivative, but it's not. You actually own the debt, it's not a forward commitment or contingent claim.

 

Plain vanilla MBS= No. Why, you may ask. Since it is bundled into a bond and the holders receive payments.

When splitting up a MBS into tranches and selling them off= CMO, then it becomes a derivative.

CNBC sucks "This financial crisis is worse than a divorce. I've lost all my money, but the wife is still here." - Client after getting blown up
 
Working9-5:
Plain vanilla MBS= No. Why, you may ask. Since it is bundled into a bond and the holders receive payments.

When splitting up a MBS into tranches and selling them off= CMO, then it becomes a derivative.

Hmm, I still think that a CMO is a debt instrument, not a derivative. It is just a different way of bundling the debt.

 

Ok, set things straight.

MBS not derivative.

Technically, all CMOs are derivatives although you will not hear a CMO trader say they are a "derivatives trader". Occasionally you will hear CMO trader say that he trades "CMO derivatives" and that means that he traders IO, PO, and IOS (not fixed/floating CMOs) --but he is most likely when asked to say "I trade structured IOs for blank" or "I trade the trust IO book for..."

This is the same for the rest of the mortgage products even if they are derivatives (ie the CMBX trader would not say he is a derivatives trader, he would say that he is a CMBX trader. Same for the ABX trader)

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 

Found this on the web: http://www.clevelandfed.org/research/Commentary/1995/0901.pdf ... says that CMOs are indeed financial derivatives.

With regards to MBS I was wrong. They don't seem to be derivatives. This can be an issue of semantics as I see asset-backed securities and the term derivatives combined all across the web... like here: http://derivativedribble.wordpress.com/2009/02/02/credit-default-swaps-….

 

That's because there were lots of CDS contracts written on MBS securities. The CDS is the derivative, the original MBS is not.

"Greed, in all of its forms; greed for life, for money, for love, for knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
 

Correct. Once you carve up the cash flows it becomes a derivative.

Jack: They’re all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard. -30 Rock
 

Error deserunt numquam inventore. Quae vero expedita ipsa tenetur inventore minima. Aperiam qui rerum quo vitae dicta illo in. Iusto quis excepturi vitae qui ipsa voluptatibus et veniam. Reiciendis facilis dicta aut. Perferendis velit tempore commodi et.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (85) $262
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (65) $168
  • 1st Year Analyst (198) $159
  • Intern/Summer Analyst (143) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
BankonBanking's picture
BankonBanking
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
kanon's picture
kanon
98.9
5
dosk17's picture
dosk17
98.9
6
GameTheory's picture
GameTheory
98.9
7
CompBanker's picture
CompBanker
98.9
8
Secyh62's picture
Secyh62
98.9
9
DrApeman's picture
DrApeman
98.8
10
numi's picture
numi
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”