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1. 

   sl 12 Mar 2012

   Q22.1B,

   To compute the PV of EL you have used the risk free rate. Shouldn’t the risky yield be used here? Also, the period is 3 years semi-annual, but the spreadsheet shows only three time periods in the calculation. Can you clarify please?

   Thanks
   Sundeep
2. 

   sl 13 Mar 2012

   Ok, I have figured out why there are only 3 time periods, you have assumed default at the half-way mark (0.5yr). But to compute the DF’s are we supposed to use the risk free rate over the risky yield?
3. 

   shanlane 14 Apr 2012

   The solution for 22.2 uses some kind of estimate.  WHere does this come from?

   Seems like it should be (1-.0086)^5=(1-.0071)^3*(1-x)^2.

   Thanks!

   Shannon
4. 

   shanlane 14 Apr 2012

   In problem 22.5, you say that the conditional default probability and the hazard rate and the default intensity are synonyms.  However, you tend to use them in slightly different ways.  For instance, when you are finding the probability of survival when valuing a CDS, you say that Prob (survival)=(1-conditional PD)^t.  However, when you solve for the “average historical default intensity” in problem 22.6, you use the exponential function.  Is this just a matter of discreet vs continuous or is there something else going on?

   Thanks!

   Shannon

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