What do you mean that "Probability of default is constant."? Don't we have to use different probability of default values (e.g. 35% and 40%) in the calculations above? Or, were you referring to the probability of default values that were given on the exam?
From what I recall, the problem was something as follows:
Cash Flow in Year 1: 1,000,000 with a probability of default of 35%, a recovery rate of 70% and a discount factor of .90
Cash Flow in Year 2: 750,000 with a probability of default of 40%, a recovery rate of 80% and a discount factor of...
The threshold amount and the minimum transfer amount are additive. If the threshold is 1.2 million and the exposure goes to 1.3 million and the minimum transfer amount is $200,000, then the exposure would need to be greater than $1.4 million in order for collateral to be posted, right...
Thanks, Nicole. Now that I've read through all of the thread you provided and other associated threads, my question is now:
When do you use each of the following? Are there certain trigger words we should be looking for?
[1– exp(-λ * time_2)] - [1– exp(-λ * time_1)]
( [1– exp(-λ *...
Question 76 on the 2016 FRM Part II practice exam:
A major regional bank has determined that a counterparty has a constant default probability of 5.5% per year. What is the probability of this counterparty defaulting in the fourth year?
The probability of default in year 4 =...
I'm interested in solving for Kendall Tau. Can someone help me with this?
The rankings for some stock returns are:
X Rank..... Y Rank
I have a question about the formula for Z-scores. I've seen the formula as:
a) Z-Score = (observation - mean) / standard deviation
b) Z-Score = (sample mean - population mean) / (standard deviation / SQRT(sample size))
Thus far, I've been using formula "a" above. When...