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 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 structured products. We demonstrate that...