What Is an SI Cover Model?
An SI cover model is a structured finance tool used to assess the credit quality of asset-backed securities. It projects cash flows, defaults, and recoveries to estimate expected losses and tranche performance under different scenarios.
How the SI Cover Model Works
The model layers credit enhancement, such as overcollateralization and subordination, over a pool of assets. It simulates payment waterfalls, stress tests, and loss distributions to show how senior, mezzanine, and equity tranches absorb risk.
Why the SI Cover Model Matters
Investors and analysts use the SI cover model to compare structured products, set pricing, and manage portfolio risk. It provides a standardized way to evaluate coverage ratios and understand potential losses in varying market conditions. For a detailed overview of structured finance analytics, see Investopedia.
