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Credit derivatives terminology

By Vinod Kothari

 

 

First loss risk:  In structured finance, the losses on a transaction, or a portfolio, are distributed to various parties in certain structure. Losses upto a defined limit will first be borne (by writing off capital or foregoing interest, or otherwise) by a certain class. This is called the first loss risk. Subsequent risk may be divided further – e.g., mezzanine risk, senior risk, etc.

 

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