This paper investigates the effect of adding a distinct feature of the Danish mortgage market to the market in the United States. This feature, a buyback option, enables mortgagors to buy back their share of the mortgage-backed security at market price. Extending a standard referenced pricing...

We investigate the effect of adding a distinct feature of the Danish mortgage market to the US market, namely a buyback option, which enables mortgagors to buy back their share of the mortgage bond at market price. Extending a standard referenced pricing-model, we find that the introduction of...

In its complexity and its vulnerability to market volatility, the constant proportion debt obligation (CPDO) might be viewed as the poster child for the excesses of financial engineering in the credit market. This paper examines the CPDO as a case study in model risk in the rating of complex...

We take an asset pricing approach to model the funding advantage of Government Sponsored Enterprises (GSEs) such as Fannie Mae and Freddie Mac. In order to replicate some stylized facts, we extend a referenced model to incorporate defaultability of mortgage agencies. The model implies that the...

We take an asset pricing approach to model the funding advantage of Government Sponsored Enterprises (GSEs) such as Fannie Mae and Freddie Mac. In order to replicate some stylized facts, we extend a referenced model to incorporate defaultability of mortgage agencies. The model implies that the...

In April 2004, JP Morgan introduced the notion of base correlations, a novel approach to quoting correlations for synthetic CDO tranches, which facilitates a simple relative valuation of off-market tranches. Using a simple intensity based credit risk model we generate 'true' tranche spreads and...

Empirical tests of structural credit risk models typically ignore bond prices when estimating parameters. In this paper we depart from this, examining a calibration of the Collin-Dufresne amp; Goldstein (2001) model to bond prices. Using alternative specifications of a liquidity discount we...