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Derivatives




Collateralized Debt Obligation


An investment-grade bond that is backed by a pool of variously-rated debt obligations including government and corporate bonds, loans, and even junk bonds. Collateralized debt obligations (CDOs, for short) (or CBOs, short for collateralized bond obligations) are similar in concept and mechanism to collateralized mortgage obligations (CMOs), but differ in that CDOs constitute different types of debt and almost represent all-inclusive degrees of credit quality rather than different maturities.

Moreover, CDOs are not limited to a specific type of debt and usually exclude mortgage loans or bonds. CDOs are typically divided into tranches (or slices), each with a specific maturity and risk characteristics.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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