Someone should pls explain this and how it is different froma normal CDO.
The key difference between a Cash CDO and a synthetic CDO is to do with the ‘pool’ of underling assets that sit behind the CDO. In a cash CDO there is a pool of assets (securities of different types) that sit on the Issuers balance sheet. The CDO is therefore backed by this pool. In other words the issuer of the CDO has direct exposure to the risk of these assets. However in a synthetic CDO there is no ‘pool’ of assets. Therefore the issuer does not have ‘direct’ exposure to the risk of the assets. However the issues takes on the economic risk exposures via a Credit Default Swap. In other the risk exposure is ‘indirect’. I hope this helps.