Construct · 1 fields · 1 citations

tranche: a standalone construct

One name. One construct. A landmark on the map.

● anchor · single construct, one field Nearest construct by meaning·not indexed
tranche1 CONSTRUCTTrancheRISK-RANKED SLICE

A single standalone construct; nearby constructs are located against it in the Collider. Tap a field for its definition, unit, and measures.

Structured finance

A risk-ranked slice of a pooled security

In structured finance a tranche is one of several slices carved from a pool of assets, each ranked by seniority so that losses hit the junior tranches first and the senior tranches only after the lower ones are exhausted. This is the mechanism, called tranching, that turns a pool of risky loans into securities of differing risk and rating. Coval, Jurek, and Stafford's 2009 The economics of structured finance explains how tranching redistributes default risk across these slices and why senior tranches proved more fragile than their ratings implied. The referent is a priority-ranked claim on a pooled cash flow, defined by its attachment and detachment points, and it is the building block that the distribution waterfall pays out in order. The word comes from the French for "slice."[1]

Unit
The seniority slice, set by its attachment and detachment points
Recovery means
Not applicable
Measured by
Defined by attachment and detachment loss points, credit rating, and the subordination beneath it

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Nearby constructs

waterfall2 fields · 2 citationsjingle · one word, two constructsslice2 fields · 2 citationsjingle · one word, two constructsattachment2 fields · 6 citationsjingle · one word, two constructs

References

  1. Coval, J., Jurek, J., & Stafford, E. (2009). The economics of structured finance. Journal of Economic Perspectives, 23(1), 3–25. https://doi.org/10.1257/jep.23.1.3

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