Suppose that a bank has made a large number of loans of a certain type. The total amount lent is $500 million. The one-year probability of default on each loan is 1.5% and the recovery rate is 30%. The bank uses a Gaussian copula for time to default. The copula correlation parameter is 0.2. Estimate the value at risk for the portfolio with a one-year time horizon and a confidence level of 99.5%.

AppendixLO1