In a CDO, suppose there are three tranches.;A gets first claim to all cash flows from the collateral;B gets second claim;and then there is a residual equity tranche E. Suppose the level of default risk in the economy declines but the correlations of default increase. What would be the likely impact of this on the values of the three tranches?;Please discuss in detail and incorporate at least 2 high quality references.
CDO: Impact of level of default risk on the values of the three tranches
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Dec 18, 2020EXPERT
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