A portfolio consists of two bonds. The probability of joint default of the two bonds is 1.27%, and the default correlation is 30%. The bond value, default probability, and recovery rate are USD 1,000,000,3%, and 60% for one bond, and USD 600,000,5%, and 40% for the other. Q1: What is the expected credit loss (ECL) of the portfolio? Q2: What is the best estimate of the u
A portfolio consists of two bonds. The probability of joint default of the two bonds is 1.27%, and the default correlation is 30%. The bond value, default probability, and recovery rate are USD 1,000,000,3%, and 60% for one bond, and USD 600,000,5%, and 40% for the other. Q1: What is the expected credit loss (ECL) of the portfolio? Q2: What is the best estimate of the u
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 probability of joint default of the two bonds is 1.27%, and the default correlation is 30%. The bond value, default probability, and recovery rate are USD 1,000,000,3%, and 60% for one bond,
and USD 600,000,5%, and 40% for the other.
Q1: What is the expected credit loss (ECL) of the portfolio?
Q2: What is the best estimate of the unexpected credit loss (away from the ECL) at a confidence level of 98% over a
one-year horizon for this portfolio?
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