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- Loss Given Default & Credit Valuation Adjustment
- Credit Risk Concepts
- Exposure & Probability of Default
- Credit Risk Modeling & Capital Calculation
The principle underlying the contingent claims approach to measuring credit risk equates the cost of eliminating credit risk for a firm to be equal to:
A. the probability of the firm's assets falling below the critical value for default
B. the market valuation of the firm's equity less the value of its liabilities
C. the value of a put on the firm's assets with a strike equal to the value of the debt
D. the cost of a call on the firm's assets with a strike equal to the value of the debt
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The sensitivity (delta) of a portfolio to a single point move in the value of the S&P500 is $100. If the current level of the S&P500 is 2000, and has a one day volatility of 1%, what is the value-at-risk for this portfolio at the 99% confidence and a horizon of 10 days? What is this method of calculating VaR called?
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Company A issues bonds with a face value of $100m, sold at issuance at $98. Bank B holds $10m in face of these bonds acquired at a price of $70. What is Bank B's exposure to the debt issued by Company A?
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There are two bonds in a portfolio, each with a market value of $50m. The probability of default of the two bonds are 0.03 and 0.08 respectively, over a one year horizon. If the default correlation is 25%, what is the one year expected loss on this portfolio?
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