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The credit VaR is defined as the maximum unexpected loss at a confidence level of 99.9% over a one-month horizon. Consider a portfolio of two

The credit VaR is defined as the maximum unexpected loss at a confidence level of 99.9% over a one-month horizon.

Consider a portfolio of two risky bonds: each bond is valued at $500,000 one month forward, and the one-year cumulative default probability is 2% for each bond [(1 - annual default probability) = (1 - monthly default probability)12].

What is the estimated credit VaR for this portfolio? Assume no default correlation and no recovery?

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