If you’ve moved with us, you now have a good enough understanding of credit default swaps, total return swaps, single name credit derivatives in general, and tranches (the latter of which is the redifferentiating counterstep to the dedifferentiating step of pooling -as the two steps to any securitization).
Now then, it’s time to move deeper into our consideration of the fungible material process of structuring finance assets -i.e. taking a preexisting generic or synthetic asset, dividing the asset, and (you know the drill:) in the course of its division, we are now capable of changing the asset in kind. So take an asset, any asset, and securitize it; this asset has been transmogrified: it is now a security (and all the economic properties that differentiate concomitant with this act therein!).
A correlative point to keep in mind here, is that as the geometer observes the loosening of a series of invariance requirements present and placed on Euclidean (or even some non-Euclidean) geometric transformations, and as we ascend down the scale of regressive differentiation in mathematics’ birth to form of topology, topological transformations, and topological invariants, it is not the case that there is now too much white symmetry, and everything is rendered into some kind of formless, homogeneous, thoroughly dedifferentiated blob of geometric properties. No, not at all. In fact, as we observe the loosening of invariance requirements that were previously in place, we see the birth to differentiation of a wholly new set of geometric properties which were real and virtual but still yet unactualized, and therefore inaccessible, under more rigid restrictions marking the earlier class of transformations. For example, continuity, closure, and so on; these new properties are specific to topology only because and as a result of the act of loosening. We see the same thing and more so with the synthetic financial economic transformations we call synthetic exchange. We have already seen this in our earlier work on Tranches. We will continue to see this throughout.
Now please follow this link to learn about the role of CLNs in Tranching.