Abstract
Abstract Structured credit portfolio insurance products such as credit constant proportion portfolio insurance (CPPI) have emerged as alternative investment products to more traditional structured assets in the past few years. Related products in the form of constant proportion debt obligations (CPDOs) added further variety to the set of structured credit products. From the perspective of the investor, while credit CPPIs have the appealing feature of providing principal protection through part investment in risk‐free assets, CPDOs are designed to return high coupon payments through leveraged exposure to investment grade risk. This article compares and contrasts the similarities and differences between credit CPPIs and CPDOs, briefly describes their structures, summarizes the risks in these securities in the form of downgrade and default risk, spread risk, and interest rate risk, and presents ideas around how to model these assets in a Monte Carlo simulation framework.
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