Question
A portfolio consists of two bonds. The bond value, default probability, and recovery rate are USD $1,000,000,1%, and 60% for one bond, and USD $400,000,
A portfolio consists of two bonds. The bond value, default probability, and recovery rate are USD $1,000,000,1%, and 60% for one bond, and USD $400,000, 5%, and 30% for the other. The default correlation of the two bonds is 15%.
Calculate the probability of joint default
Calculate the expected credit loss for the portfolio
Calculate the credit VaR for the portfolio at confidence levels from 99%-95%
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Quantitative Investment Analysis
Authors: Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, David E. Runkle
3rd edition
111910422X, 978-1119104544, 1119104548, 978-1119104223
