A Subprimer on Risk
Research Paper
August 1, 2007
Preview
Early in 2007, there were concerns about two issues that could wind up causing significant havoc. One was the potential unwind of the yen carry trade, which we covered in our last issue. The other was the weakness in subprime mortgages in the US. As events have unfolded over the last few months, it is clear that a piece on this second topic is due. We focus in particular on the problems posed by the illiquid markets in securities backed by subprime mortgages, and discuss a number of approaches to assess risk in the absence of regular trading or reliable pricing information.
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