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The Journal of Structured Finance

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Primary Article

Analytical Challenges in Secondary-Market CDO Trading

Douglas J. Lucas, Laurie S Goodman and Frank J Fabozzi
The Journal of Structured Finance Summer 2004, 10 (2) 54-68; DOI: https://doi.org/10.3905/jsf.2004.426073
Douglas J. Lucas
Director of CDO Research at UBS in New York, NY.
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  • For correspondence: douglas.lucas@ubs.com
Laurie S Goodman
Managing director and co-head of Global Fixed Income Research at UBS in New York, NY.
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  • For correspondence: laurie.goodman@ubs.com
Frank J Fabozzi
The Frederick Frank Adjunct Professor of Finance at the School of Management of Yale University.
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  • For correspondence: fabozzi321@aol.com
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Abstract

Secondary trading in the collateralized debt obligation (CDO) market came into its own in 2003 and has continued at a robust pace in 2004. One reason is the significant increase in resources available for analyzing outstanding CDOs, chiefly the availability of CDO-specific cash flow models. This article provides a step-by-step guide to evaluating a secondary CDO. The authors pay particular attention to two popular analytical methods: net asset value analysis and cash flow modeling. These two techniques have improved investors? understanding of CDOs and therefore secondary-market liquidity. The authors suggest a methodology to produce a range of constant annual default rates for the purpose of modeling structured-finance-backed CDOs and suggest some negotiating points for primary CDO purchasers to ensure the liquidity of their CDOs in the secondary market.

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The Journal of Structured Finance
Vol. 10, Issue 2
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Analytical Challenges in Secondary-Market CDO Trading
Douglas J. Lucas, Laurie S Goodman, Frank J Fabozzi
The Journal of Structured Finance Jul 2004, 10 (2) 54-68; DOI: 10.3905/jsf.2004.426073

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Analytical Challenges in Secondary-Market CDO Trading
Douglas J. Lucas, Laurie S Goodman, Frank J Fabozzi
The Journal of Structured Finance Jul 2004, 10 (2) 54-68; DOI: 10.3905/jsf.2004.426073
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