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Suppose that a bank has made a large number of loans of a certain type. The one-year probability of default on each loan is 1.5%
Suppose that a bank has made a large number of loans of a certain type. The one-year probability of default on each loan is 1.5% and the recovery rate is 30%. Tha bank uses a Gaussian copula for time to default. Use Vasicek model to estimate the default rate that we are 99.5% certain will not be exceeded. Assume a copula correlation of 0.2
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