The Big Short

by

Michael Lewis

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Collateralized debt obligation (CDO)

A collateralized debt obligation (CDO) is a type of finance product that became very popular around 2003 and which played a major role in the vast amounts of money lost during the 2007 subprime mortgageread analysis of Collateralized debt obligation (CDO)

Credit default swap

The confusingly named credit default swap is not so much a swap as an insurance policy. The person who buys the swap is essentially betting against a financial product (often a bond) in the… read analysis of Credit default swap

Hedge fund

A hedge fund is a firm that engages in relatively risky trading strategies in order to hopefully beat the market and make money for clients. FrontPoint Partners, Scion Capital, and Cornwall Capital—the three major firms… read analysis of Hedge fund

Long

In finance terms, going long on a company means buying its stock with the expectation of the stock going up. It is the most conventional type of investing and generally considered safest, though in certain… read analysis of Long

Short

Shorting a stock is the opposite of going long on it. Instead of buying low to sell high, the trader makes a bet that a stock’s value will go down. This is generally considered a… read analysis of Short
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Subprime mortgage

A mortgage is a loan taken out to buy a home, and a subprime mortgage is a specific type of mortgage aimed at people who have low credit scores (and who are therefore at high… read analysis of Subprime mortgage

Tranche

Tranche comes from the French word for portion, and in finance, it generally means part of an investment. In The Big Short, the most important tranches are the various different grades of subprimeread analysis of Tranche