| Securitization is aiming to provide liquidity and investment targets for the market via transform of basic assets. It is a profound innovation in the financial market, and is becoming the third important way of funding besides the debt and equity issuing. In China, it was started in2005, but due to the restriction on financial market, till now the scale of the securitization is quite small. However, when the time came to2013, the government, especially the SEC of China, was actively sending out signals that it was going to release the restrictions on securitization, which has been approved by multi documents released by SEC afterward. Securitization, as a significant component of mature market, cannot be declined forever. To progress into a developed capital market, we have to empty our hands and let go of what necessary. What we should do is to offer a real mature market and mature investors as well. This is how we come with this paper.We deeply combined the theory with empirical analysis, in the meantime, introduced a real case to further demonstrate our hypothesis and conclusions. We divided the article into8parts. First, we introduced the definition of securitization, its structure, process and risks as well. Second, we used the nowadays wildly accepted products as the example to pose an empirical analysis determining factors that affects the investors’bearing risks and their profits. Third, we involved a real case occurred very recent to further support our judgment on current market.Part1, we introduced the background and defined the expectation and means of this paper. After the comparison between domestic and international research papers on securitization, we provided our approach and structure.Part2, we emphasized on the theory, especially on the definition of securitization, since there are always debates on what should be named after "Securitization". Then, we introduced the common feature of assets which are fundamental of securitization. We compare US securitized products with our current ones to support the point we are way behind.Part3, not like other products, securitization ones are greatly affected by their individual structures, because this is what defines the cash flow or the profits of investors. We here introduced two very basic structures, pass through and pay through. We provide the mechanism of each structure and its associated risks. Afterwards, we discuss the role and responsibilities of each participants and the process of securitization. Part4, we focused on risks. Simply we separate risks as systematic and unsystematic ones. Systematic ones cannot be diminished or even minimized; therefore, we skipped this part and keep our attention on unsystematic ones. We list various unsystematic risks with their factors which might trigger them and methodologies which we may use to counter with them.Part5, unlike the previous part, here we especially focus on unique risks associated with securitization. We define them as pre-payment risks, credit risks and securitized risks. We further discuss factors affecting those risks and how they affect. Also in this part, we discuss the pre-caution methods to prevent risks or minimize them.Part6, from regulation perspective, we show how China comes so far after2005and provide the general introduction of regulation revolution. As we believe, the law and regulations are the basic element to develop. Only under a relative mature jurisdiction system, market can be well defended and hoping to prospect.Part7, we utilize a wildly accepted securitization product as an example to start our empirical analysis. Here, we use the Monte Carlo Simulation to simulate the real environment to identify risks with their working mechanism and returns that associated with factors. We define our findings relying on Monte Carlo Simulation and provide our suggestions on how we gonna do it in the future.Part8, we introduce a real case and discuss its working principle and structure. More importantly we use this case to reinforce our conclusions. |
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