Credit Risk Part A

Discussion in 'P2.T6. Credit Risk (25%)' started by Neha_Agrawal, Jun 23, 2008.

  1. Neha_Agrawal

    Neha_Agrawal New Member

    FYI it has been described on slide 42 that 'p' is the Probability of Repayment and '1-p' is the Prob of Default. Coming to Slide 46 the numerical says PD =.9725 from previous which should actually be Prob of Repayment. The Calculation is correct.
    Since I haven't purchased Saunders yet and was trying to seek clarification that in the formula we are feeding in the value of Prob of repayment rather than PD.

    I understand that this has been dropped out of the curriculum, hence need not worry.


  2. David Harper CFA FRM

    David Harper CFA FRM David Harper CFA FRM (test) Staff Member

    Hi Neha,

    You are correct, I have a typo on slide 46. p = 97.25 refers, as you say, to probability of repayment.
    Saunders always means "probability of repayment" by 'p' such that 1-p = PD, in his reading.
    (although I wish he wouldn't use p this way, i still think it is confusing. But my error, still).
    (and you are right, this technically has dropped out of 2008 AIMS, but still worth looking at)


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