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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (237)	9/28/1998 6:36:00 AM
From: Henry Volquardsen	Read Replies (3) \| Respond to of 2794

Michael, To me a derivative is something that relies exclussively on some other instrument or index for price discovery. In the case of convertibles and CMOs both have optionality which gives them certain characteristics in common with derivatives but they are essentially bonds. The CMOs for example are not indexed to mortgages but are backed by a specific pool of mortgages. This makes them more asset backed securities in my mind. The same goes for IOs and POs. Yes they have optionality but no more than the CMOs themselves. They are really no different from strips and zeros on Treasuries. Where Orange County got in trouble was on things like reverse floaters which are more derivatives. There was also a real problem with excessive leverage. Henry