Asset-Backed Security (ABS) is a security derived from a pool of underlying assets by which the financial institutions pool multiple loans (e.g., mortgages, credit card debt, student loans, and auto loans) into a single security to be sold to general investors. An ABS is characterised by a diversified risk profile with a securitisation process, and allows the risk of investing in the underlying assets, as each security only contains a fraction of the total pool of underlying assets. An ABS may also be subject to certain risks, such as prepayment risk, interest rate risk, and credit risk.

Related Definitions in the Project: The Commercial Definitions