The VIE model uses a “by design” to evaluating risk and variability. While certain risks may be present, they may not actually be the risks that the entity is designed to create. Often these risks will be mitigated by various methods so that the risk is not passed along to variable interest holders. Interest rate risk is pervasive. If this risk is not intended to be passed along to variable interest holders, the risk must be mitigated either by hedging the risk or by structuring the assets of the entity to render the risk trivial.
Comments are closed.