Dynamic sizing in securitisation is a process of adjusting the size of a securitisation based on changes in the underlying assets. This can be done to ensure that the securitisation remains attractive to investors and to manage the risk of dilution.
There are a number of factors that can be used to determine the size of a securitisation, including:
The credit quality of the underlying assets: Securisations that are backed by high-quality assets are more likely to be attractive to investors, which can allow for a larger securitisation.
The interest rate environment: If interest rates are rising, investors may be less willing to invest in securitisations, which can lead to a smaller securitisation.
The amount of credit enhancement: Credit enhancement is a financial guarantee that is provided by a third party. The credit enhancement can help to protect investors from losses, which can allow for a larger securitisation.