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The second chapter of my dissertation studies the CMBS credit rating market using a strategic interaction model.The 2008 financial crisis that arose in the mortgage market has brought renewed attention to the failure of the credit rating mechanism.
My dissertation consists of three chapters that contribute to our understanding of the causes of the crisis.
My first chapter is an empirical study on potential misrepresentation of CMBS.
Although CMBS suffered large scale losses during the past financial crisis, currently, this segment of the structured finance market has almost recovered to its pre-crisis level.
While evidence was found regarding the systematic misrepresentation of loan quality information for residential mortgages, there was no evidence of large scale misreporting for CMBS.
Over the recent past ambivalence in the definition of capital adequacy for credit risk has particularly facilitated the development of loan securitisation as a refined "regulatory arbitrage tool".
Mortgage Backed Securities Thesis Essay Writing Course Sydney University
However, as impending regulatory change shifts the prime objective of securitisation to the efficient management of economic capital, procedural and substantive aspects of asset securitisation warrant closer inspection.
Each 1% increase in over-estimation resulted in a 20% higher likelihood in delinquency.
The ratings issued by rating agencies failed to capture the adverse impact from over-estimation on CMBS performance.
The dissertation presents a comprehensive examination of the risk modelling, asset selection, optimal security design and competitive market pricing of asset-backed securities.
We first provide an overview of the main characteristics of asset securitisation and explain its attendant benefits and drawbacks, especially as they pertain to the refinancing of illiquid asset exposures, such as SME-related payment obligations.