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Derivatives

Second-Generation ABX Products Advance

Second-generation products--including tranches and options--on the synthetic asset-backed securities index, ABX, are likely to take off in coming months, said Rajiv Kamilla, v.p. in the structured products group at Goldman Sachs.

Second-generation products--including tranches and options--on the synthetic asset-backed securities index, ABX, are likely to take off in coming months, said Rajiv Kamilla, v.p. in the structured products group at Goldman Sachs. "The ABX matured very quickly," he said, comparing the nearly six-month-old residential mortgage-backed securities index with the synthetic corporate credit index, CDX. "Tranches and options are likely to follow later this year."

Tranching the 20-name ABX has been a challenge and debate since the index started trading in January (DW, 5/26). With the first roll approaching on July 19, combining on-the-run and off-the-run indices has emerged as the leading tranching strategy. The two indices together would produce 40 names of different vintages. Traders are also looking at pricing options on the index, Kamilla said, noting that while none have traded there is significant investor interest.

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