Research On Risk Transfer Mechanism Of Subprime Mortgage Securitizing

As the fastest growing and most dynamic financial innovation product in current international capital markets, asset securitization products had been rapidly developed before U.S. subprime mortgage crisis. At the end of the first season in 2008, the outstanding amount of U.S. MBS was up to 7.4 trillion dollar. The subprime loans'risk transferred with rapid developed asset securitization.The mortgage lenders issued high risk subprime mortgage, and then sold to investment banks. While the investment banks securitized the MBS of low credit rating into CDO again and sold to financial markets. Accompanying with the process of asset securitization, the default risk of mortgage borrowers transfer to other financial institutions through the capital chain and eventually caused the eruptions of risk.This paper analysis the expansion effects and the transfer channels of the risk transfer quantitatively in the subprime mortgage securitization by combining qualitative analysis and quantitative analysis, theoretical analysis and empirical analysis. The paper is divided into five chapters, the first chapter reviews the theory of asset securitization of China and foreign scholars; Second chapter provides a theoretical basis by sorting out the theoretical basis on risk transfer of asset securitization; Third chapter theoretically analysis the risk source, amplification effects and risk transfer channels of the subprime mortgages securitized risk transfer mechanisms; Fourth Chapter uses single-factor model to empirically test the subprime mortgage risk amplification, and through co integration equation, the error correction model and the variable auto regression model fully characterize the subprime mortgages securitized risk transfer mechanisms; Fifth chapter summarizes the research conclusions and the implications for China.The innovative work of this paper mainly includes the following three aspects:First, on the standpoint of analysis, the paper considers the risk caused by asset securitization as point cut and combined the financial innovation and the financial crisis. This paper connects related financial institutions and does research on the financial system based on the process of asset securitization. The focus of this study is the relationship between risk accumulation, risk transfer and the systematic risk.Second, on the method of analysis, the paper synthetically applies variable auto regression model, impulse response functions and variance decomposition to characterize the risk transfer mechanism. It is beneficial for asset securitization of risk transfer of validation, and process of formation caused the crisis of the dynamic research by using the auto regression model; meanwhile, the paper discriminates the impact effects of asset securitization to the financial system by impulse response analysis:the paper identifies the financial risk exposure degree accumulation in all financial institutions, as well as the influence versus financial crises size by variance decomposition.Third, on the content of analysis, the paper systematically gives a comprehensive study on the source of risk transfer, direct cause, the amplification effect of risk transfer, and transfer channels. The paper uses a single-index model to quantitative analysis the systemic risk in financial markets, and empirically proves single credit risk cumulative into entire financial system risk by asset securitization; also, this paper shows the error correction model by co integration test of long-term relationship between various markets, adds quantitative models on risk transfer mechanism.