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EnglishIn this paper we propose a model to evaluate the performance of a Constant Proportion Debt Obligation (CPDO) and assess its rating. We model credit spread evolution in a HJM framework and default events for CPDO are generated by using a reduced form approach. Implementing a numerical algprithm that simulates the strategy of a CPDO, we obtain a rating for CPDO by using Monte Carlo simulations. We find a rating inferior to the one assigned by rating agencies. using our model for credit spread dynamics, the revealed default probability for CPDO could have been predicted.
| Titolo: | Why did CPDOs fail? An analysis focused on credit spread modeling | |
| Autori: | ||
| Data di pubblicazione: | 2010 | |
| Rivista: | ||
| Abstract: | In this paper we propose a model to evaluate the performance of a Constant Proportion Debt Obligation (CPDO) and assess its rating. We model credit spread evolution in a HJM framework and default events for CPDO are generated by using a reduced form approach. Implementing a numerical algprithm that simulates the strategy of a CPDO, we obtain a rating for CPDO by using Monte Carlo simulations. We find a rating inferior to the one assigned by rating agencies. using our model for credit spread dynamics, the revealed default probability for CPDO could have been predicted. | |
| Handle: | http://hdl.handle.net/11369/4749 | |
| Appare nelle tipologie: | 1.1 Articolo in rivista |
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