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Credit derivatives terminology

By Vinod Kothari

 

 

Tranche: The slice in the stacking order of liabilities in a CDO or a structured finance transaction. One of the fundamental principles of structured finance is to create liabilities having differential risks: hence, there is a hierarchy of liabilities having different attachment points and detachment points of losses. Any such layer in the liabilities is called a tranche. See equity tranche, senior tranche. Mezzanine tranche is the layer(s) between equity and senior tranches.

 

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