Architectural technical debt (ATD) is incurred by design decisions that intentionally or unintentionally compromise system-wide quality attributes, particularly maintainability and evolvability. ATD is harmful to the system’s long-term health, thus it needs to be identified for further management. However, existing ATD identification approaches are mainly based on source code analysis and thus ...

The objective of this paper is to help a bank originator of a collateralized debt obligation (CDO) to build a maximally profitable CDO. We consider an optimization framework for structuring CDOs. The objective is to select attachment/ detachment points and underlying instruments in the CDO pool. In addition to “standard” CDOs we study so-called “step-up” CDOs. In a standard CDO contract the att...

We present a cashow based model of corporate debt valuation that incorporates two novel features. First, we allow for the separation and optimal determination of the rm's debt-service and dividend policies; in particular, the rm is allowed to maintain cash reserves to meet future debt obligations. Second, our model admits the possibility that raising resources through issuance of new equity cou...

Reverse mortgages are new financial products that allow the elders to convert their home equity into cash until they die. From the provider’s perspective, longevity risk and house price risk are the major risks involved with reverse mortgages. This paper proposes a securitization method to transfer the risks associated with reverse mortgages and focuses on tranching longevity and house price ri...

A critical issue in the credit risk industry is the accurate, efficient and robust pricing of collateralized debt obligations (CDO) in a variety of mathematical models. These and many similar basket default products are very complex, due to characteristics of the large number of individual firms upon which they depend. Despite this complexity and because of their versatility, such products have...

This paper develops numerical approximations for pricing collateralized debt obligations (CDOs) and other portfolio credit derivatives in the multifactor Normal Copula model. A key aspect of pricing portfolio credit derivatives is capturing dependence between the defaults of the elements of the portfolio. But, compared with an independent-obligor model, pricing in a model with correlated defaul...

We analyze a model of optimal capital structure and liquidity choice based on a dynamic tradeoff theory for financially constrained firms. In addition to the classical tradeoff between the expected tax advantages of debt financing and bankruptcy costs, we introduce a cost of external financing for the firm, which generates a precautionary demand for cash and an optimal retained earnings policy ...

This paper is part of a series explaining various methodologies for defining and measuring the contributions of systematic factors to economic capital as well as for hedging systematic risk in credit portfolios. Multi-factor credit portfolio models are used widely today for measuring and managing economic capital as well as for pricing credit portfolio instruments such as collateralized debt ob...

February 2000 www.dcrco.com n recent years, collateralized debt obligations (CDOs) have emerged as one of the largest and fastest growing sectors of the asset-backed securities (ABS) market. Due to increasing use of bond and loan collateral within one transaction, the term collateralized debt obligation is becoming more popular, and the terms collateralized bond obligation (CBO) and collaterali...

Arora, Barak, Brunnermeier, and Ge [ABBG10] showed that taking computational complexity into account, a dishonest seller could increase the lemon costs of a family of financial derivatives dramatically. We show that if the seller is required to construct derivatives of a certain form, then this phenomenon disappears. In particular, we define and construct pseudorandom derivative families, for w...