Please use this identifier to cite or link to this item: https://doi.org/10.1142/S0219024905003050
Title: Pricing credit risk of asset-backed securitization bonds in Singapore
Authors: Sing, T.F. 
Ong, S.E. 
Fan, G.-Z. 
Lim, K.G.
Keywords: Asset-backed securitization
Credit risk
Intensity model
Structural model
Issue Date: 2005
Source: Sing, T.F.,Ong, S.E.,Fan, G.-Z.,Lim, K.G. (2005). Pricing credit risk of asset-backed securitization bonds in Singapore. International Journal of Theoretical and Applied Finance 8 (3) : 321-338. ScholarBank@NUS Repository. https://doi.org/10.1142/S0219024905003050
Abstract: Asset-backed securitization (ABS) is a creative arrangement to raise funds through the issuance of marketable securities backed by predictable future cash flows from revenue-producing assets. This paper proposes two pricing models: structural model and intensity model, to value credit spreads on Singapore ABS bonds. Sensitivity analyses were conducted on the ABS credit spreads by varying the values of the key input variables within a plausible range. The property price volatility and its correlations with risk-less interest rates have been shown to have positive effects on the ABS credit spreads. However, when the market volatility is extremely high, the credit spreads decrease with an increase in the time to maturity. The positive effects of the property price volatility were significantly reduced when credit enhancements were added to the ABS bonds, and the credit risks associated with the correlation variable were fully eliminated in the credit enhanced ABS bonds. The rate of loss recovery in the event of default also has significant impact on the credit risks of the ABS bonds. ABS bonds backed by physical property will likely to have high recovery rates thus reducing the credit risks vis-à-vis non-collateralized bonds. © World Scientific Publishing Company.
Source Title: International Journal of Theoretical and Applied Finance
URI: http://scholarbank.nus.edu.sg/handle/10635/46214
ISSN: 02190249
DOI: 10.1142/S0219024905003050
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