P2.T6. Credit Risk (25%)

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  1. Nicole Seaman
    Sticky

    Errors Found in Study Notes P2.T6. Credit Risk

    Hello @The Great Khan This is because we were not able to completely update the focus review videos this year so some of the content that was removed from the curriculum may still be included in the videos. We feel that it is better to publish the previous videos rather than to not publish them at all because much of the content is still relevant for this year's exam. Thank you, Nicole
    Hello @The Great Khan This is because we were not able to completely update the focus review videos this year so some of the content that was removed from the curriculum may still be included in the videos. We feel that it is better to publish the previous videos rather than to not publish them at all because much of the content is still relevant for this year's exam. Thank you, Nicole
    Hello @The Great Khan This is because we were not able to completely update the focus review videos this year so some of the content that was removed from the curriculum may still be included in the videos. We feel that it is better to publish the previous videos rather than to not publish...
    Hello @The Great Khan This is because we were not able to completely update the focus review videos this year so some of the content that was removed from the curriculum may still be included in...
    Replies:
    8
    Views:
    863
  2. emilioalzamora1

    Retail vs. corporate credit default (time of default)

    Hi David, I would like to ask the following: some reading in Part II (either Malz, Crouhy, Stulz Golin or Hull) mentions something about the time of default. Could be another author as well but I guess it must be somewhere in the aforementioned books. It goes something like this: for corporates the probability of default is highest at the end of the loan whereas the probability of default for...
    Hi David, I would like to ask the following: some reading in Part II (either Malz, Crouhy, Stulz Golin or Hull) mentions something about the time of default. Could be another author as well but I guess it must be somewhere in the aforementioned books. It goes something like this: for corporates the probability of default is highest at the end of the loan whereas the probability of default for...
    Hi David, I would like to ask the following: some reading in Part II (either Malz, Crouhy, Stulz Golin or Hull) mentions something about the time of default. Could be another author as well but I guess it must be somewhere in the aforementioned books. It goes something like this: for corporates...
    Hi David, I would like to ask the following: some reading in Part II (either Malz, Crouhy, Stulz Golin or Hull) mentions something about the time of default. Could be another author as well but I...
    Replies:
    0
    Views:
    20
  3. Rohit
    Replies:
    2
    Views:
    83
  4. farahm

    delaurentis - chapter 2 - recovery

    I have read it many times now and still not 100 percent sure. But I guess the main point he makes is that Recovery depends heavily on the jurisdiction and type of contract and that this information is lost if you look at a Recovery from a generalized or global point of view. So from a model perspective (regarding estimation of Recovery) it would be very hard to incorporate the specific...
    I have read it many times now and still not 100 percent sure. But I guess the main point he makes is that Recovery depends heavily on the jurisdiction and type of contract and that this information is lost if you look at a Recovery from a generalized or global point of view. So from a model perspective (regarding estimation of Recovery) it would be very hard to incorporate the specific...
    I have read it many times now and still not 100 percent sure. But I guess the main point he makes is that Recovery depends heavily on the jurisdiction and type of contract and that this information is lost if you look at a Recovery from a generalized or global point of view. So from a model...
    I have read it many times now and still not 100 percent sure. But I guess the main point he makes is that Recovery depends heavily on the jurisdiction and type of contract and that this...
    Replies:
    1
    Views:
    66
  5. Ekin4112

    CVA Questions

    To make it as simple as possible and to give you another practical example where is no upfront payment like in a long option position: 1) Suppose you are a Swap Dealer at a Banks Swap Desk. We assume there is no DVA. A client with lets say a BB rating wants to enter into a fixed rate payer swap. There is no CSA in place. To make the deal favorable for your desk you have to consider CVA. CVA...
    To make it as simple as possible and to give you another practical example where is no upfront payment like in a long option position: 1) Suppose you are a Swap Dealer at a Banks Swap Desk. We assume there is no DVA. A client with lets say a BB rating wants to enter into a fixed rate payer swap. There is no CSA in place. To make the deal favorable for your desk you have to consider CVA. CVA...
    To make it as simple as possible and to give you another practical example where is no upfront payment like in a long option position: 1) Suppose you are a Swap Dealer at a Banks Swap Desk. We assume there is no DVA. A client with lets say a BB rating wants to enter into a fixed rate payer...
    To make it as simple as possible and to give you another practical example where is no upfront payment like in a long option position: 1) Suppose you are a Swap Dealer at a Banks Swap Desk. We...
    Replies:
    13
    Views:
    520
  6. Linghan

    Learning spreadsheet P2.T6 Malz ch7

    @David Harper CFA FRM Thanks for clearify that!
    @David Harper CFA FRM Thanks for clearify that!
    @David Harper CFA FRM Thanks for clearify that!
    @David Harper CFA FRM Thanks for clearify that!
    Replies:
    2
    Views:
    72
  7. southeuro

    effect of default probability on equity and mezzanine

    Thanks @David Harper CFA FRM
    Thanks @David Harper CFA FRM
    Thanks @David Harper CFA FRM
    Thanks @David Harper CFA FRM
    Replies:
    15
    Views:
    1,242
  8. emilioalzamora1

    Cash-funded vs. syntethic CDO (borrower consent/notification)

    Hi All, I wanted to raise the following topic and share my insights about Cash-funded vs. syntethic CDO and whether one of these requires the borrower notification/obtaining borrower consent? This could be of one of these tricky questions in the exam (similarly engineered questions have turned up at the exam in Nov. 2016) David, it would be much appreciated if we can have your take on this?...
    Hi All, I wanted to raise the following topic and share my insights about Cash-funded vs. syntethic CDO and whether one of these requires the borrower notification/obtaining borrower consent? This could be of one of these tricky questions in the exam (similarly engineered questions have turned up at the exam in Nov. 2016) David, it would be much appreciated if we can have your take on this?...
    Hi All, I wanted to raise the following topic and share my insights about Cash-funded vs. syntethic CDO and whether one of these requires the borrower notification/obtaining borrower consent? This could be of one of these tricky questions in the exam (similarly engineered questions have turned...
    Hi All, I wanted to raise the following topic and share my insights about Cash-funded vs. syntethic CDO and whether one of these requires the borrower notification/obtaining borrower consent?...
    Replies:
    0
    Views:
    80
  9. arkabose

    VaR question (Part 2 exam - members put other question you can recall)

    I am stuck with this question too, I was thinking if 5% of loss on 25 loans (1% recovery rate) then that should be time 1.645 but the answer does not match!
    I am stuck with this question too, I was thinking if 5% of loss on 25 loans (1% recovery rate) then that should be time 1.645 but the answer does not match!
    I am stuck with this question too, I was thinking if 5% of loss on 25 loans (1% recovery rate) then that should be time 1.645 but the answer does not match!
    I am stuck with this question too, I was thinking if 5% of loss on 25 loans (1% recovery rate) then that should be time 1.645 but the answer does not match!
    Replies:
    1
    Views:
    201
  10. equanimity

    GARP Part 2 Questions 76 and 33 (garp16-p2-76) (garp16-p2-33)

    Just to add to the helpful comments already here: Question 76 is asking for the unconditional PD in year 4, which can be also answered by subtracting th 3-year cumulative PD from the 4-year cumulative PD: (1-5.5%)^4 - (1-5.5%)^3 = 4.64%. I like this calculation because to me it is somewhat intuitive: as the unconditional probability is the probability "from the perspective of today," if the...
    Just to add to the helpful comments already here: Question 76 is asking for the unconditional PD in year 4, which can be also answered by subtracting th 3-year cumulative PD from the 4-year cumulative PD: (1-5.5%)^4 - (1-5.5%)^3 = 4.64%. I like this calculation because to me it is somewhat intuitive: as the unconditional probability is the probability "from the perspective of today," if the...
    Just to add to the helpful comments already here: Question 76 is asking for the unconditional PD in year 4, which can be also answered by subtracting th 3-year cumulative PD from the 4-year cumulative PD: (1-5.5%)^4 - (1-5.5%)^3 = 4.64%. I like this calculation because to me it is somewhat...
    Just to add to the helpful comments already here: Question 76 is asking for the unconditional PD in year 4, which can be also answered by subtracting th 3-year cumulative PD from the 4-year...
    Replies:
    6
    Views:
    172
  11. arkabose

    Collateral can increase exposure?

    I think Gregory is just illustrating an outlier possibility related to "the need to post collateral and parameters such as minimum transfer amounts create some risk above the threshold." The portfolio value -15 implies this party has posted collateral but the collateral amount is not continously accurate (per MTA and other parameters) such that $18 has actually been posted and $3 is due to be...
    I think Gregory is just illustrating an outlier possibility related to "the need to post collateral and parameters such as minimum transfer amounts create some risk above the threshold." The portfolio value -15 implies this party has posted collateral but the collateral amount is not continously accurate (per MTA and other parameters) such that $18 has actually been posted and $3 is due to be...
    I think Gregory is just illustrating an outlier possibility related to "the need to post collateral and parameters such as minimum transfer amounts create some risk above the threshold." The portfolio value -15 implies this party has posted collateral but the collateral amount is not...
    I think Gregory is just illustrating an outlier possibility related to "the need to post collateral and parameters such as minimum transfer amounts create some risk above the threshold." The...
    Replies:
    1
    Views:
    82
  12. Johnny Firpo

    CDS and CDS Index long or short

    @David Harper CFA FRM , no probs! With the amount of hard work and support you are giving to this forum at this moment, little mistakes are not unexpected! :p :)
    @David Harper CFA FRM , no probs! With the amount of hard work and support you are giving to this forum at this moment, little mistakes are not unexpected! :p :)
    @David Harper CFA FRM , no probs! With the amount of hard work and support you are giving to this forum at this moment, little mistakes are not unexpected! :p :)
    @David Harper CFA FRM , no probs! With the amount of hard work and support you are giving to this forum at this moment, little mistakes are not unexpected! :p :)
    Replies:
    14
    Views:
    10,070
  13. shanlane

    Merton formula

    Hi @Arnaudc Okay, right, as I actually look at Malz currently, you are correct about his assumption in the first step (page 219). Sorry to misrepresent him on that, thank you for pushing back, I learned something here! :) (fwiw, my key influence is ) Malz page 219: "Example 6.3 (Merton Model): We apply the model to a firm that has an asset value of $140. We’ll assume the firm’s sole debt issue...
    Hi @Arnaudc Okay, right, as I actually look at Malz currently, you are correct about his assumption in the first step (page 219). Sorry to misrepresent him on that, thank you for pushing back, I learned something here! :) (fwiw, my key influence is ) Malz page 219: "Example 6.3 (Merton Model): We apply the model to a firm that has an asset value of $140. We’ll assume the firm’s sole debt issue...
    Hi @Arnaudc Okay, right, as I actually look at Malz currently, you are correct about his assumption in the first step (page 219). Sorry to misrepresent him on that, thank you for pushing back, I learned something here! :) (fwiw, my key influence is ) Malz page 219: "Example 6.3 (Merton Model): We...
    Hi @Arnaudc Okay, right, as I actually look at Malz currently, you are correct about his assumption in the first step (page 219). Sorry to misrepresent him on that, thank you for pushing back, I...
    Replies:
    10
    Views:
    1,446
  14. no_ming

    GARP.FRM.PQ.P2 2016 GARP PQ - Question 5 - CDS (garp16-p2-5)

    @David Harper CFA FRM , Thank you for confirming / clarifying! Regarding the LGD confusion, I think an easy way not to get it wrong is to understand the LGD as the loss an investor would suffer an a specific instrument without taking into account CDS protection. (then this LGD is simply plugged into CDS valuation formula's. Thanks again. Kind regards,
    @David Harper CFA FRM , Thank you for confirming / clarifying! Regarding the LGD confusion, I think an easy way not to get it wrong is to understand the LGD as the loss an investor would suffer an a specific instrument without taking into account CDS protection. (then this LGD is simply plugged into CDS valuation formula's. Thanks again. Kind regards,
    @David Harper CFA FRM , Thank you for confirming / clarifying! Regarding the LGD confusion, I think an easy way not to get it wrong is to understand the LGD as the loss an investor would suffer an a specific instrument without taking into account CDS protection. (then this LGD is simply plugged...
    @David Harper CFA FRM , Thank you for confirming / clarifying! Regarding the LGD confusion, I think an easy way not to get it wrong is to understand the LGD as the loss an investor would suffer an...
    Replies:
    6
    Views:
    323
  15. taunk

    P2.T6.309. Default correlation, Malz sections 8.1 and 8.2

    I am sorry. I goofed up. I had this question no. 74 in mind when I raised the query.
    I am sorry. I goofed up. I had this question no. 74 in mind when I raised the query.
    I am sorry. I goofed up. I had this question no. 74 in mind when I raised the query.
    I am sorry. I goofed up. I had this question no. 74 in mind when I raised the query.
    IMG-20161030-WA0002.jpg
    Replies:
    2
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    95
  16. frmqiu

    GARP.FRM.PQ.P2 hazard rate (garp16-p2-33)

    Hi @frmqiu Yes, the language in question 2016.P2.Q33 was reported earlier in the year as imprecise. I recall that GARP agreed with our feedback. @Deepak Chitnis is correct that the solution implicitly is the discrete conditional PD, but the phrasing suggests it wants a joint probability. Please see here for more detail
    Hi @frmqiu Yes, the language in question 2016.P2.Q33 was reported earlier in the year as imprecise. I recall that GARP agreed with our feedback. @Deepak Chitnis is correct that the solution implicitly is the discrete conditional PD, but the phrasing suggests it wants a joint probability. Please see here for more detail
    Hi @frmqiu Yes, the language in question 2016.P2.Q33 was reported earlier in the year as imprecise. I recall that GARP agreed with our feedback. @Deepak Chitnis is correct that the solution implicitly is the discrete conditional PD, but the phrasing suggests it wants a joint probability....
    Hi @frmqiu Yes, the language in question 2016.P2.Q33 was reported earlier in the year as imprecise. I recall that GARP agreed with our feedback. @Deepak Chitnis is correct that the solution...
    Replies:
    3
    Views:
    102
  17. The Great Khan

    Merton drift in DD

    Hi All, P2.T6.R43 I am trying to conceptually understand how the DD value is calculated statistically. The numerator is the expected value of the price, and the denominator is the standard deviation. My question relates to the numerator. Assume T-t=1 ln(Vo/K) is the current log "return" at T=0. We then add what I assume is the expected drift until maturity (r-(sig^2)/2). How am I supposed...
    Hi All, P2.T6.R43 I am trying to conceptually understand how the DD value is calculated statistically. The numerator is the expected value of the price, and the denominator is the standard deviation. My question relates to the numerator. Assume T-t=1 ln(Vo/K) is the current log "return" at T=0. We then add what I assume is the expected drift until maturity (r-(sig^2)/2). How am I supposed...
    Hi All, P2.T6.R43 I am trying to conceptually understand how the DD value is calculated statistically. The numerator is the expected value of the price, and the denominator is the standard deviation. My question relates to the numerator. Assume T-t=1 ln(Vo/K) is the current log "return" at...
    Hi All, P2.T6.R43 I am trying to conceptually understand how the DD value is calculated statistically. The numerator is the expected value of the price, and the denominator is the standard...
    Replies:
    0
    Views:
    107
  18. emilioalzamora1

    Total Return Swap (Crouhy) - Figure 12-7 - mistake?

    many thanks, David! Apologies,I was referring to Crouhy's first edition in my question (there it is Figure 12-7). Now it makes good sense.
    many thanks, David! Apologies,I was referring to Crouhy's first edition in my question (there it is Figure 12-7). Now it makes good sense.
    many thanks, David! Apologies,I was referring to Crouhy's first edition in my question (there it is Figure 12-7). Now it makes good sense.
    many thanks, David! Apologies,I was referring to Crouhy's first edition in my question (there it is Figure 12-7). Now it makes good sense.
    Replies:
    3
    Views:
    133
  19. arkabose

    MtM and Exposure for Netting

    Hi @arkabose Yes, agreed. Your circled item is from the source (Gregory) and it's not listed in his errata that I can see (). However, I agree with you. This looks like a mistake to me (sorry). Your second paragraph, of course, is CORRECT: in a fixed cross-currency swap, the counterparty who pays the higher interest rate has a positive expected future M2M; i.e., the higher relative rate, per...
    Hi @arkabose Yes, agreed. Your circled item is from the source (Gregory) and it's not listed in his errata that I can see (). However, I agree with you. This looks like a mistake to me (sorry). Your second paragraph, of course, is CORRECT: in a fixed cross-currency swap, the counterparty who pays the higher interest rate has a positive expected future M2M; i.e., the higher relative rate, per...
    Hi @arkabose Yes, agreed. Your circled item is from the source (Gregory) and it's not listed in his errata that I can see (). However, I agree with you. This looks like a mistake to me (sorry). Your second paragraph, of course, is CORRECT: in a fixed cross-currency swap, the counterparty who...
    Hi @arkabose Yes, agreed. Your circled item is from the source (Gregory) and it's not listed in his errata that I can see (). However, I agree with you. This looks like a mistake to me (sorry)....
    Replies:
    1
    Views:
    179
  20. Kaiser

    Netting factor

    Thanks vm for the confirmation David. Makes sense with this lower bound. Rgds,
    Thanks vm for the confirmation David. Makes sense with this lower bound. Rgds,
    Thanks vm for the confirmation David. Makes sense with this lower bound. Rgds,
    Thanks vm for the confirmation David. Makes sense with this lower bound. Rgds,
    Replies:
    2
    Views:
    197
  21. no_ming

    GARP.FRM.PQ.P2 2016 GARP PQ - Question 52 -Netting

    Hi @no_ming In this question, the type of instruments don't really matter as the question is giving you the mark-to-market value ("current market value";) of the positions. Credit exposure is max(value, 0). So the credit exposure here without netting is 54, but with netting it is only 21: Without netting: max(0, +21) + max(0, -33) + max(0, +33) = 54 With netting: max(0, 21 - 33 + 33) = 21
    Hi @no_ming In this question, the type of instruments don't really matter as the question is giving you the mark-to-market value ("current market value";) of the positions. Credit exposure is max(value, 0). So the credit exposure here without netting is 54, but with netting it is only 21: Without netting: max(0, +21) + max(0, -33) + max(0, +33) = 54 With netting: max(0, 21 - 33 + 33) = 21
    Hi @no_ming In this question, the type of instruments don't really matter as the question is giving you the mark-to-market value ("current market value";) of the positions. Credit exposure is max(value, 0). So the credit exposure here without netting is 54, but with netting it is only...
    Hi @no_ming In this question, the type of instruments don't really matter as the question is giving you the mark-to-market value ("current market value";) of the positions. Credit exposure is...
    Replies:
    1
    Views:
    176
  22. mh2452

    de Servigny, Chapter 3 - Spreadsheet

    Hello @mh2452 Any spreadsheets that are not published under the individual readings are published under that topic's Topic Review section in spreadsheet bundles. So if you to into Topic 6, you will find the spreadsheet bundles for that topic. I hope this helps! Nicole
    Hello @mh2452 Any spreadsheets that are not published under the individual readings are published under that topic's Topic Review section in spreadsheet bundles. So if you to into Topic 6, you will find the spreadsheet bundles for that topic. I hope this helps! Nicole
    Hello @mh2452 Any spreadsheets that are not published under the individual readings are published under that topic's Topic Review section in spreadsheet bundles. So if you to into Topic 6, you will find the spreadsheet bundles for that topic. I hope this helps! Nicole
    Hello @mh2452 Any spreadsheets that are not published under the individual readings are published under that topic's Topic Review section in spreadsheet bundles. So if you to into Topic 6, you...
    Replies:
    1
    Views:
    113
  23. no_ming

    PQ-external Excess spreads question~

    Hi @no_ming Your question is good because sometimes default is assumed to refer to only the principal (as your solution infers), however here (in my opinion) the question does specify "accumulates 6.625 mm of losses from defaults and unpaid interest." And, this is natural (yes?): losses should refer to both unpaid principal and unpaid interest. So, given the phrasing, appropriate would be...
    Hi @no_ming Your question is good because sometimes default is assumed to refer to only the principal (as your solution infers), however here (in my opinion) the question does specify "accumulates 6.625 mm of losses from defaults and unpaid interest." And, this is natural (yes?): losses should refer to both unpaid principal and unpaid interest. So, given the phrasing, appropriate would be...
    Hi @no_ming Your question is good because sometimes default is assumed to refer to only the principal (as your solution infers), however here (in my opinion) the question does specify "accumulates 6.625 mm of losses from defaults and unpaid interest." And, this is natural (yes?): losses should...
    Hi @no_ming Your question is good because sometimes default is assumed to refer to only the principal (as your solution infers), however here (in my opinion) the question does specify "accumulates...
    Replies:
    3
    Views:
    176
  24. no_ming

    PFE & EE Question~

    @no_ming Re: In another word, not only EE, if Sigma and mean increase, PFE, EPE etc. also increase, is that right? Yes, if you increase µ or σ then you are shifting or "expanding" (dispersing) the normal distribution, so the x% PFE will increase, in the same way that higher volatility or lower return will increase (absolute) value at risk because there x% tail (quantile) is further into loss...
    @no_ming Re: In another word, not only EE, if Sigma and mean increase, PFE, EPE etc. also increase, is that right? Yes, if you increase µ or σ then you are shifting or "expanding" (dispersing) the normal distribution, so the x% PFE will increase, in the same way that higher volatility or lower return will increase (absolute) value at risk because there x% tail (quantile) is further into loss...
    @no_ming Re: In another word, not only EE, if Sigma and mean increase, PFE, EPE etc. also increase, is that right? Yes, if you increase µ or σ then you are shifting or "expanding" (dispersing) the normal distribution, so the x% PFE will increase, in the same way that higher volatility or lower...
    @no_ming Re: In another word, not only EE, if Sigma and mean increase, PFE, EPE etc. also increase, is that right? Yes, if you increase µ or σ then you are shifting or "expanding" (dispersing) the...
    Replies:
    8
    Views:
    212
  25. no_ming

    PQ-external CVA & credit limit question:

    Mr. Harper, very clear explanation , thanks a lot. Dr. Jayanthi Sankaran, also thanks for your help.:)
    Mr. Harper, very clear explanation , thanks a lot. Dr. Jayanthi Sankaran, also thanks for your help.:)
    Mr. Harper, very clear explanation , thanks a lot. Dr. Jayanthi Sankaran, also thanks for your help.:)
    Mr. Harper, very clear explanation , thanks a lot. Dr. Jayanthi Sankaran, also thanks for your help.:)
    Replies:
    3
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    183
  26. afterworkguinness

    Equity tranche spread wrt correlation

    Hello Sir, Can you please help me with the below question Question 1 Part a) Consider the following assets present in loan portfolio of IMT Bank Ltd, all the assets below are mortgage loans. Exposure 1 Exposure 2 Exposure 3 Portfolio Commitment $100,000,000 $120,000,000 ...
    Hello Sir, Can you please help me with the below question Question 1 Part a) Consider the following assets present in loan portfolio of IMT Bank Ltd, all the assets below are mortgage loans. Exposure 1 Exposure 2 Exposure 3 Portfolio Commitment $100,000,000 $120,000,000 ...
    Hello Sir, Can you please help me with the below question Question 1 Part a) Consider the following assets present in loan portfolio of IMT Bank Ltd, all the assets below are mortgage loans. Exposure 1 Exposure 2 Exposure 3 ...
    Hello Sir, Can you please help me with the below question Question 1 Part a) Consider the following assets present in loan portfolio of IMT Bank Ltd, all the assets below are mortgage loans. ...
    Replies:
    8
    Views:
    1,948
  27. nwalker

    GARP.FRM.PQ.P2 question in derivation process of merton model credit spread

    Logarithm quotient rule logb(x / y) = logb(x) - logb(y) is the formula used for calculation its not 1/x it x/y ...
    Logarithm quotient rule logb(x / y) = logb(x) - logb(y) is the formula used for calculation its not 1/x it x/y ...
    Logarithm quotient rule logb(x / y) = logb(x) - logb(y) is the formula used for calculation its not 1/x it x/y ...
    Logarithm quotient rule logb(x / y) = logb(x) - logb(y) is the formula used for calculation its not 1/x it x/y ...
    Replies:
    1
    Views:
    133
  28. Tradespotting

    Considerations about commitment fee and EAD

    Hi to all! If I understood correctly, banks apply a commitment fee (fixed percentage) on the undrawn portion of a credit line to hedge the further expected loss associated with that credit exposition. So you have to pay more if you are using a small drawn portion of the credit line. Now, given the fact that a firm with an high rating (such as AA or A) will only use a small part of the credit...
    Hi to all! If I understood correctly, banks apply a commitment fee (fixed percentage) on the undrawn portion of a credit line to hedge the further expected loss associated with that credit exposition. So you have to pay more if you are using a small drawn portion of the credit line. Now, given the fact that a firm with an high rating (such as AA or A) will only use a small part of the credit...
    Hi to all! If I understood correctly, banks apply a commitment fee (fixed percentage) on the undrawn portion of a credit line to hedge the further expected loss associated with that credit exposition. So you have to pay more if you are using a small drawn portion of the credit line. Now, given...
    Hi to all! If I understood correctly, banks apply a commitment fee (fixed percentage) on the undrawn portion of a credit line to hedge the further expected loss associated with that credit...
    Replies:
    0
    Views:
    100
  29. Stuti

    Credit Exposure

    Hi @Stuti It's the same square root rule that let's us scale volatility/VaR per sqrt(ΔT) but therefore importantly it is conditional on the same i.i.d. assumption, namely that the returns of the credit risk factor are independent. Further, this is the simplest possible credit exposure profile; i.e., a single i.i.d. credit risk factor. For example, in a swap, sqrt(ΔT) tends to characterize...
    Hi @Stuti It's the same square root rule that let's us scale volatility/VaR per sqrt(ΔT) but therefore importantly it is conditional on the same i.i.d. assumption, namely that the returns of the credit risk factor are independent. Further, this is the simplest possible credit exposure profile; i.e., a single i.i.d. credit risk factor. For example, in a swap, sqrt(ΔT) tends to characterize...
    Hi @Stuti It's the same square root rule that let's us scale volatility/VaR per sqrt(ΔT) but therefore importantly it is conditional on the same i.i.d. assumption, namely that the returns of the credit risk factor are independent. Further, this is the simplest possible credit exposure...
    Hi @Stuti It's the same square root rule that let's us scale volatility/VaR per sqrt(ΔT) but therefore importantly it is conditional on the same i.i.d. assumption, namely that the returns of the...
    Replies:
    1
    Views:
    84
  30. no_ming

    CDS pricing question!

    Hi @no_ming Yes, on one level, that's correct: the question implies an increase in price and, if we naively assume that the price determines the collateral posted (as the question implies), then the price increase implies additional collateral is posted. As discussed, most of the price movement should be fundamental (i.e., changes in the reference's credit quality) but, as is always the case,...
    Hi @no_ming Yes, on one level, that's correct: the question implies an increase in price and, if we naively assume that the price determines the collateral posted (as the question implies), then the price increase implies additional collateral is posted. As discussed, most of the price movement should be fundamental (i.e., changes in the reference's credit quality) but, as is always the case,...
    Hi @no_ming Yes, on one level, that's correct: the question implies an increase in price and, if we naively assume that the price determines the collateral posted (as the question implies), then the price increase implies additional collateral is posted. As discussed, most of the price movement...
    Hi @no_ming Yes, on one level, that's correct: the question implies an increase in price and, if we naively assume that the price determines the collateral posted (as the question implies), then...
    Replies:
    8
    Views:
    338
  31. cAse113

    Real world application: Deriving default probabilities from observed CDS spreads

    Hi there, I have to solve a problem which is actually a real world application of Malz, Chapter 7 - Bootstrapping default probabilities given an observable CDS spread curve. Please refer to the excel attached: I have created an excel spreadsheet that should do the calculation. What it basically does is - given an observable CDS spread curve - modelling the cash flows of a hypothetical CDS...
    Hi there, I have to solve a problem which is actually a real world application of Malz, Chapter 7 - Bootstrapping default probabilities given an observable CDS spread curve. Please refer to the excel attached: I have created an excel spreadsheet that should do the calculation. What it basically does is - given an observable CDS spread curve - modelling the cash flows of a hypothetical CDS...
    Hi there, I have to solve a problem which is actually a real world application of Malz, Chapter 7 - Bootstrapping default probabilities given an observable CDS spread curve. Please refer to the excel attached: I have created an excel spreadsheet that should do the calculation. What it...
    Hi there, I have to solve a problem which is actually a real world application of Malz, Chapter 7 - Bootstrapping default probabilities given an observable CDS spread curve. Please refer to the...
    Replies:
    0
    Views:
    345

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