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Relationships between default probability and VaR (Malz,Chapter 9)

Nicole Seaman

Director of FRM Operations
Staff member
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Hi @David Harper CFA FRM ,

While holding correlation constant, may I ask why increasing default probability will decrease VaR for the junior tranches and increases VaR for the senior tranches?

Thank you!
Hello @Unusualskill

I'm not sure if this will answer your question, as I'm not 100% sure if this is exactly the same concept, but I did find a thread in the forum, where someone else asked this question. There is a good deal of discussion in this thread, including a helpful YouTube video. Again, not sure if this will answer your question, but hopefully it can help a little bit. https://www.bionicturtle.com/forum/...lity-on-equity-and-mezzanine.8144/#post-32295

Nicole
 
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