A portfolio consists of two bonds. The bond value, default probability, and recovery rate are USD $1,000,000,1%, and 60% for one bond, and USD $400,000, 5%, and 30% for the other. The default correlation of the two bonds is 15%. Calculate the probability of joint default Calculate the expected credit loss for the portfolio Calculate the credit VaR for the portfolio at confidence levels from 99%-95%
A portfolio consists of two bonds. The bond value, default probability, and recovery rate are USD $1,000,000,1%, and 60% for one bond, and USD $400,000, 5%, and 30% for the other. The default correlation of the two bonds is 15%. Calculate the probability of joint default Calculate the expected credit loss for the portfolio Calculate the credit VaR for the portfolio at confidence levels from 99%-95%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A portfolio consists of two bonds. The bond value, default probability, and recovery rate are USD $1,000,000,1%, and 60% for one bond, and USD $400,000, 5%, and 30% for the other. The default correlation of the two bonds is 15%.
Calculate the probability of joint default
Calculate the expected credit loss for the portfolio
Calculate the credit VaR for the portfolio at confidence levels from 99%-95%.
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