wilmott.com

I want to know what are the diffrerences between this kind of assets 'cause it looks to me very similar.Thanks.

Sorry I posst the topic twice.

MBS are not necessarily tranched (e.g. can be 'pass-thru'), CDO's are by definition.

QuoteOriginally posted by: tibbarMBS are not necessarily tranched (e.g. can be 'pass-thru'), CDO's are by definition.Ok, I ask that because all the MBS that I saw are divided in tranches (if the word tranches exist!),for that reason I don't see any diffrence. Thanks!

I believe that the MBS is paper backed entirely by mortgages. CDOs can take slices of any debt obligation (like a mortgage backed security) and package them together as one instrument. So I think the MBS will typically have whole mortgages in it (likely from geographically disparate areas), and a typical CDO will take the slices (or tranches) of MBS and pool them together. Of course, a CDO can really be anything. At the end of the mortgage boom, brokers were selling CDOs backed by their own debt so they could buy more MBSs and CDOs themselves (I believe these are what was sold to Iceland).Here's a good explanation (if you don't like to look at Wikipedia): MBSs

You can (or used to before the CC) create synthetic CDOs too based on a portfolio of CDSs.

The way I understand it, the set of MBS is a subset of the set of CDOs. The difference is in the underlying asset. Mortgage loans necessarily form the underlying for MBS, whereas the underlying for a CDO can be almost any form of asset (mortgage loans, corporate loans, credit card loans, student loans, other CDOS ... etc, and in the case of synthetic CDO, can be CDS (+ cash bonds) as well, as rmax has pointed out)

Not necessarily, bats66. MBS is simply a security that is backed by mortgage collateral. MBS can be tranched up (various classes like a CMO/CDO/CLO) or simply pass through where each investor gets a proportional share of cash flow. There are also stripped MBS or SMBS where the interest and principal cash flow streams are stripped separately. CMBS (commercial CMBS) is typically in a CDO structure whereas residential (RMBS) is largely pass through.I think one way of characterizing it is that a tranched MBS is a type of CDO. Hope this is helpful.N.