Payer swaption, MBS, CDO and CDS

CFA Level II
#1

MBS is said equivalent to call on bond, CDO is also equivalant to call on bond, but why CDS buyer and payer swaption is equivalant to put on bond

#2

CDS buyer will pay fixed premiums to insure against some Credit Risk. Payment of fixed premiums at fixed intervals is equivalent to paying Coupons when you issue a Bond. So, buying CDS is like issuing/selling a bond. Payer Swaption is right to enter into an Interest Rate Swap, by paying fixed rate. Again, we are paying a fixed amount at regular intervals, which is equivalent to paying fixed coupons on a bond you have issued/sold. Hope this helps.

#3

thanks, but you only explain the second half, can you explain the first half? MBS is said equivalent to call on bond, CDO is also equivalant to call on bond,

#4

Just understand it as: any security that pays you a fixed amount regularly (whether it is MBS or CDO or any other security), is like you bought a Bond and are getting its regular stated coupon. Which is equivalent to a Call (buy) on a Bond.

#5

thanks. very valuable