METHOD FOR EXECUTING A SINGLE TRANCHE SYNTHETIC ABS DERIVATIVE TRANSACTION

• US 20100325066A1
• Filed: 07/07/2010
• Published: 12/23/2010
• Est. Priority Date: 09/06/2006
• Status: Active Grant

• Current Assignee: Barclays Capital Incorporated (Barclays PLC)
• Original Assignee: Barclays Capital Incorporated (Barclays PLC)
• Inventors: LAI, Jonathan, LEE, Jeong Gu
• Granted Patent: US 8,793,175 B2
• Time in Patent Office: Days
• US Class Current: 705/36R
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A Single Tranche Synthetic ABS product is designed to replicate economics returns of structured finance collateralized debt obligations (SF CDO) securities and allow parties to express a leveraged and/or correlation view on a custom ABS portfolio by transferring a credit risk of a particular transacted tranche of a portfolio in swap format. The inventions described herein account for an available funds cap risk of the ABS securities within the underlying portfolio in a manner equivalent to a cash analog based on the same underlying portfolio with sequential pay structure.

Claims

1-23. -23. (canceled)

24. A computer implemented method comprising:

providing a single tranche derivative transaction, wherein the derivative transaction relates to a reference portfolio, and wherein the single tranche derivative transaction relates to a single transacted tranche within a capital structure containing a plurality of reference tranches;

determining, by a processor, a level of impairment of each of the plurality of reference tranches following an occurrence of a principal loss in the reference portfolio;

allocating said principal loss in a reverse sequence among the plurality of reference tranches beginning with a most subordinate tranche;

determining, by a processor, an amount of notional principal to restore each of the plurality of reference tranches following an occurrence of a principal shortfall reimbursement or a writedown reimbursement in the reference portfolio;

allocating said principal shortfall reimbursement or writedown reimbursement in sequence among the plurality of reference tranches beginning with a most senior tranche that has been impaired and ending with a most subordinate tranche;

determining, by a processor, an amount of a principal reduction for each of the plurality of reference tranches following a principal payment in the reference portfolio;

allocating the principal payment in sequence among the plurality of reference tranches beginning with the most senior tranche and ending with the most subordinate tranche; and

determining, by a processor, an outstanding tranche notional amount of the transacted tranche and each of the plurality of reference tranches based on the allocation of principal losses, principal shortfall reimbursements, writedown reimbursements, and principal payments.

25. The method of claim 24 further comprising calculating, by a processor, the outstanding tranche notional amount of the transacted tranche n for a time period t is calculated using the formula:

max[(OTN_n·

ITF_n)−

Σ

IPL_n+Σ

IPR_n−

max(Σ

PP−

IPS+LC_n),0),0], wherein;

OTN_n is an original tranche notional for transacted tranche n,

ITF_n is an initial tranche factor for transacted tranche n,

IPL_n is incurred principal losses for transacted tranche n,

IPR_n is incurred principal reimbursements for transacted tranche n,

PP is a principal payment,

IPS is an initial portfolio size, and

LC_n is a loss cap for transacted tranche n.

26. The method of claim 24 further comprising calculating, by a processor, the incurred principal loss of the transacted tranche n for a time period t using the formula:

min(max(PPL_t−

PPR_t,

     0), max(APL_t−

LT_n), OTNA_t-1), wherein;

PPL_t is periodic principal losses for time period t,

PPR_t is periodic principal reimbursements for time period t,

APL_t is aggregate principal losses for time period t,

LT_n is a loss threshold for transacted tranche n, and

OTNA_t-1 is an outstanding tranche notional amount for a preceding time period t-1.

27. The method of claim 24 further comprising calculating, by a processor, the incurred principal shortfall reimbursement of a transacted tranche n for a time period t using the formula:

min(max(PPR_t−

PPL_t−

max(APL_t-1−

LC_i,0),0),max(Σ

IPL_t−

Σ

IPR_t-1,0)), wherein;

PPR_t is periodic principal reimbursements for time period t,

PPL_t is periodic principal losses for time period t,

APL_t-1 is aggregate principal losses for a preceding time period t-1,

LC_i is a loss cap for reference tranche i,

IPL_t is incurred principal losses for time period t, and

IPR_t-1 is incurred principal reimbursements for a preceding time period t-1.