Just to check if I understand this correctly.
The more senior the tranche the less default risk... the more you have to rely on the counterparty of the cdo to not default? wouldn't these tranches be in a default remote vehicle in the first place?
Also, i'm not really clear on why one would want protection on super senior tranches. I don't understand what is meant by "potentially not being able to recognize PL on a transaction" (page 109 of the notes)
I kind of get that you would buy protection for gamma exposure, but then i would think it makes more sense to have protection on less senior tranches.
The more senior the tranche the less default risk... the more you have to rely on the counterparty of the cdo to not default? wouldn't these tranches be in a default remote vehicle in the first place?
Also, i'm not really clear on why one would want protection on super senior tranches. I don't understand what is meant by "potentially not being able to recognize PL on a transaction" (page 109 of the notes)
I kind of get that you would buy protection for gamma exposure, but then i would think it makes more sense to have protection on less senior tranches.