Hybrid securities having protection against event risk using uncorrelated last-to-default baskets

摘要

Hybrid securities defined as last-to-default credit default swaps over multiple name baskets and having protection against event risk. In the preferred embodiment, the hybrid security is defined as a second-to-default credit default swap over a two-name basket, wherein the underlying reference obligors in the basket are uncorrelated or substantially uncorrelated. A portfolio of second-to-default swaps over two-name baskets is provided, wherein the portfolio is defined in a manner that further reduces default risk through enhanced diversification achieved by recombining underlying reference obligors in different second-to-default baskets. A structured investment in a portfolio of underlying second-to-default swaps over two-name baskets is provided using a collateralized debt obligation (CDO) structure.