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- Financial assets or bonds pooled together and offered to the investors for receiving the inflow of funds from these underlying assets are called asset-based securities.
- Asset-backed securities are classified into installment contracts, revolving lines of credit and other assets.
- In an installment contract, an investor is given an undivided interest in a pool of assets, that are utilized for securitization.
- Different types of installment contracts include automobile loan-backed securities, home equity loans, and so.
- Credit card receivable backed securities is an example for revolving lines of credit.
- Credit enhancement of an asset-backed security implies existence of support for one or more of the bond holders in the structure.
- Monte Carlo simulation model is used in valuing ABSs as the cash flows of ABS are dependent on interest rate path.