Assume that your bank underwrote 7 loans to various crypto hedge funds based in Virgin Islands each
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Question:
Assume that your bank underwrote 7 loans to various crypto hedge funds based in Virgin Islands each valued at $20M. The PDs (10% each) of each hedge fund are independent of each other and follow a binomial distribution. Assume that recovery rate is 15% for each loan. What is the 99% Value at Risk (VAR) of this loan portfolio? Please show your work and each step in your calculation. Please also explain, how you would do the calculation if the loan PDs were not independent of each other (i.e. if you had to incorporate default correlations into your model).
Related Book For
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
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