Cambridge Debt Advisors

Cambridge Debt Advisors is an institutional investment advisory firm that specializes in exotic debt instruments

Technology

As a glimpse into the inner workings of our team in the context of our trading activities, below is a brief overview of CDA’s analytic and research capabilities, the backbone of any dedicated structured products firm.

Our CDO model values CDO tranches based on an analysis of the CDO’s underlying portfolio, the CDO’s structure and the risks and returns available to each tranche. To calculate the cash flows to the tranches, our CDO model runs a Monte-Carlo simulation of the evolution of a CDO’s underlying portfolio. The characteristics of the portfolio are based on the market values of the securities today and the distribution of defaults that the market prices imply. Once the model has been calibrated to market values, we run many simulations of the portfolio, observing the cashflows to every tranche in the CDO’s waterfall in each simulation.

Overall, the CDA methodology allows us to price the liabilities of the CDO in a way that is consistent with the values that the market has for the underlying debt securities.


Summary of CDA’s CDO Valuation Process:

  • Determine market value of every asset in portfolio
  • Calculate default rates for each asset individually
  • Create correlation structure for portfolio
  • Simulate portfolio future (Monte-Carlo) many times
  • Run samples through waterfall
  • Diagram NPV of flows to tranches in different scenarios
  • Determine the value of the tranches

These elements are them combined with in-depth information about the qualitative characteristics of the portfolio to create a complete picture of the deal. Our analysis is then presented in thoughtful credit reports that convey the complexities of each structure as relevant to our trading activities.

Disclaimer

The information contained herein is as of 23-Oct-2013, unless indicated otherwise, and is neither an offer to sell nor a solicitation of an offer to purchase securities from Cambridge Debt Advisors or any related entities. Such an offer or solicitation will only be made to eligible investors by means of an offering memorandum and related subscription materials. Prior investments and performance data described in this presentation are unaudited and for illustrative purpose only. Past performance is not necessarily an indication of future success.