Types of CDOs
A) Based on the underlying asset:
- Collateralized loan obligations (CLOs) — CDOs backed primarily by leveraged bank loans.
- Collateralized bond obligations (CBOs) — CDOs backed primarily by leveraged fixed income securities.
- Collateralized synthetic obligations (CSOs) — CDOs backed primarily by credit derivatives.
- Structured finance CDOs (SFCDOs) — CDOs backed primarily by structured products (such as asset-backed securities and mortgage-backed securities).
Note: In 2007, 47% of CDOs were backed by structured products, such as mortgages; 45% of CDOs were backed by loans, and only less than 10% of CDOs were backed by fixed income securities.
B) Other types of CDOs include:
- Commercial Real Estate CDOs (CRE CDOs) — backed primarily by commercial real estate assets
- Collateralized bond obligations (CBOs) — CDOs backed primarily by corporate bonds
- Collateralized Insurance Obligations (CIOs) — backed by insurance or, more usually, reinsurance contracts
- CDO-Squared — CDOs backed primarily by the tranches issued by other CDOs.
- CDO^n — Generic term for CDO3 (CDO cubed) and higher, where the CDO is backed by other CDOs/CDO2/CDO3. These are particularly difficult vehicles to model because of the possible repetition of exposures in the underlying CDO.
Read more about this topic: Collateralized Debt Obligation
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