Structured Finance Simulation

Become the master of Financial Engineering and Securitization. Learn to create, analyze, and trade complex securities like Collateralized Debt Obligations and Mortgage-Backed Securities.

Structured Finance Simulation Overview

Step into the roles of financial engineers and asset managers at a leading investment bank. The program revolves around the core process of securitization: pooling various income-generating assets (like mortgages, corporate loans, or auto loans) and issuing new, layered securities backed by those cash flows.

Teams are tasked with sourcing assets, designing the capital structure (tranches), and pricing the different risk-return profiles to appeal to specific investor bases. They must navigate fluctuating market conditions, assess credit and prepayment risks, and manage their portfolio's performance against benchmarks.

Although ideal for undergraduate and graduate finance courses, executive training, and corporate finance skill workshops, the simulation is modular and scalable, allowing instructors to vary complexity.

Structured Finance Simulation Concepts

Participants work through realistic scenarios, which can be customized to emphasize or exclude specific topics depending on the learning goals. This modular structure allows the simulation to be tailored to any type of session. Key concepts include:

Securitization and SPVs
Tranching: Equity, Mezzanine, and Senior Notes
Credit Enhancement Techniques
Cash Flow Waterfall Structures
Credit Default Swaps and Synthetic Structures
Yield, Duration, and Convexity
Prepayment Risk and Default Modeling
Credit Ratings and Agency Interactions
Portfolio Theory and Diversification
Mark-to-Market vs. Hold-to-Maturity Accounting

Gameflow

What Participants Do

In the simulation, participants will:

Source and Analyze a pool of underlying assets (corporate bonds, mortgages).
Design the Capital Structure by creating multiple tranches with different risk/return profiles.
Price the Tranches based on their seniority, credit enhancement, and target investor appetite.
Interact with Credit Rating Agencies to seek ratings for your structured notes.
Trade Securities in a live market, reacting to economic data and news events.
Manage a Portfolio of structured products, making strategic buy/sell/hold decisions.
Analyze Performance using key metrics like IRR, NPV, and default rates.
Compete against other teams to achieve the highest risk-adjusted returns.

Learning Objectives

By the end of the simulation, participants will be able to:

Explain the end-to-end process of securitization and the role of each participant.
Design a viable capital structure for a pool of assets, defining the rights of each tranche.
Evaluate the risk and return characteristics of different structured finance products.
Apply credit enhancement techniques to improve a tranche's rating and marketability.
Analyze the impact of economic changes (interest rates, default rates) on structured product performance.
Synthesize complex financial information to make informed investment and structuring decisions.

How the Structured Finance Simulation Works

This simulation can be run individually or in teams in academic or corporate contexts. Each cycle represents a stage of getting through a pressing financial situation.

1. Setup and Asset Sourcing Participants are divided into teams, each running their own structured finance desk. They receive initial capital and a mandate. In each round, teams review and bid on pools of underlying assets available in the market.

2. Structuring Using the simulation's intuitive interface, teams design their securities, setting the size, priority, and coupon for each tranche.

3. Pricing and Issuance Teams must price their tranches attractively to sell them to the simulated investor community.

4. Trading and Management A live market opens where teams can trade their own and others' securities, managing their portfolio based on live news feeds and economic data.

5. Reporting and Analysis At the end of each round, detailed performance reports are generated, showing cash flows, defaults, and mark-to-market valuations.

Frequently Asked Questions

What is structured finance in simple terms? Structured finance involves bundling various financial assets (like loans) together and then slicing this bundle into new securities that are sold to investors. Each slice has a different level of risk and return.
Do I need prior experience in structured finance? While a basic understanding of finance is helpful, it is not required. The simulation includes preparatory materials and is designed to be a learning-by-doing experience for all levels.
What is the duration of the simulation? The simulation can be tailored to run from a single intensive 4-hour session to a multi-week module integrated into a full semester course.
What kind of assets are used in the simulation? The simulation features a variety of asset classes, including residential mortgages, commercial mortgages, and corporate loans, allowing participants to explore different types of securitization.
How are credit ratings determined in the simulation? The simulation's algorithm acts as a rating agency, analyzing the credit enhancement, subordination levels, and asset pool quality to assign a rating to each tranche.
Is this a competitive simulation? Yes, teams compete to achieve the highest risk-adjusted return on their structured finance portfolio, creating an engaging and motivating environment.
Can this simulation be customized for corporate training? Absolutely. We can customize the simulation's parameters, assets, and complexity to match the specific learning objectives of your organization or executive education program.

Assessment

Assessment of participant performance can be tailored according to the host institution’s objectives (business school, corporate training, assessment centre). Typical assessment criteria include:

Portfolio Quality and Risk Management
Team Portfolio Performance
Individual Quizzes.
Final Team Report and Presentation
Peer Evaluation

Assessment may incorporate peer and self-review components, facilitator scoring, and debrief discussion. Results may feed into grades, executive feedback, certification or development plans.