Cheapest-to-deliver: Difference between revisions

It should not surprise anyone that the holder of a [[Option|financial option]] will exercise it. This ''did'' surprise purchasers of managed [[CDO]]s which loosely defined the obligations that could be used when valuing a credit event on a given Reference Entity. When the day of apocalypse against which they had bet arrived, they found it was being valued against some deeply subordinated perpetual bond, which counted as “debt” by the skin of its teeth and no more — and not the publicly quoted senior indebtedness they were expecting. When you take the other side of a financial contract, you must read it with peril-sensitive sunglasses.

Any organisation to whom one outsources one’s operational framework for the long term will measure its success by how closely it can tack, on average, to the bare minimum whilst not too regularly over-stepping it.