Constant proportion debt obligations: Genuine money machines or artifacts of ambitious modeling?

Date created: 
2007
Keywords: 
Constant Proportion Debt Obligation
CPDO
Structured Finance
Structured Credit
Credit Derivatives
Abstract: 

We model Constant Proportion Debt Obligations (CPDOs) within a Monte Carlo simulation framework in order to examine their sensitivity to various assumptions and parameters. We find that, although we are able to generate exceptionally low default rates under certain assumptions that are commonly used in the industry literature, the sensitivity of default rates and other performance measures to these assumptions is high. Moreover, given the questionable plausibility of some of these assumptions, it is not clear that CPDOs truly carry the same low risk as similarly-rated high investment grade products.

Description: 
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Language: 
English
Document type: 
Thesis
Rights: 
Copyright remains with the author
File(s): 
Senior supervisor: 
R
Department: 
Faculty of Business Administration - Simon Fraser University
Thesis type: 
M.A. (M.A.)
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