What's new

November 2016 Part 2 Exam Feedback

Is there anyone who remembers CVA calculation?
I know how to slove this question
However I don't remember what I chose.
a, b, c, d..I think I chose a or b.
 
Is there anyone who remembers CVA calculation?
I know how to slove this question
However I don't remember what I chose.
a, b, c, d..I think I chose a or b.
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 .85

I solved this as follows:

1,000,000 * 0.35 * (1 - 0.70) * 0.90 = 94,500
750,000 * 0.40 * (1 - 0.80) * 0.85 = 51,000

CVA = 94,500 + 51,000 = 144,500

Is this the correct approach?
 
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 .85

I solved this as follows:

1,000,000 * 0.35 * (1 - 0.70) * 0.90 = 94,500
750,000 * 0.40 * (1 - 0.80) * 0.85 = 51,000

CVA = 94,500 + 51,000 = 144,500

Is this the correct approach?

Yes.

However, Probability of default is constant.
I don't remember what I chose
I think correct answer is a or b
 
Yes.

However, Probability of default is constant.
I don't remember what I chose
I think correct answer is a or b
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?
 
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?
I remember 1Year Probability of default is stated.
but 2Year Probability of default is not stated.
I tried to remember question but my memory was blurred.
 
Last edited:

emilioalzamora1

Active Member
Subscriber
YES YES INDEED! It's game over, man! I did it and this without reading half of the operational risk readings and without reading 'current issues' at all.
Anyway, David you are the 'man tonight' - this is for sure! I am comparing the win of the US open by Stan Wawrinka over Djokovic last year when he was interviewed by Tom Rinaldi from ESPN.
 
Last edited:
Top