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First, thanks for responding.
Regarding the contraction risk:
I understand that U is senior to V. W is the support tranche. When any prepayments occur - first W absorbs the prepayments, after that V absorbs the prepayments. So U has the least Contraction risk.
Regarding extension risk:
I understand your theory: “Now say both V and W are gone.”
But, the question doesn’t say anything about V and W being gone. I think I understand that if V and W are gone, then, U has less extension risk and more contraction risk.
Could there be another explanation for why U has less extension risk (without making the assumption that V and W are gone)?
Thanks

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