Abstract
The purpose of this thesis is to initially discuss the Credit Enhancement Mechanism of credit card. Besides, the introduction of the C notes structure and reserve account is also included. The reserve account is designed to protect the C notes against loss in the underlying collateral performance. By using the selected interest rate model, the value of C notes is priced under two different amortization schedules, including bullet-payment and controlled-amortization structure. This study further examines the mechanism of an early amortization trigger and also its impact on the valuation of C notes. When the three-month average excess spread falls below zero, an early amortization is triggered to the securities, which sequentially paying Class A principle, Class B principle, and C notes principle. More importantly, a sensitivity analysis is conducted to investigate the changes in the value of C notes as monthly payment rates, default rates, and monthly purchase rates are allowed to vary. To the end, to the extent the level of loss recovery of the reserve account to cover C notes loss is also investigated when an early amortization has already in place.