The Poisson distribution is not part of CreditMetrics. The first step consists of the gathering of inputs. The gathering includes calculating many measures such as probability of default, recovery rate statistics, factor correlations and their relationships to the obligors, yield curve data, and individual exposures that are distinct from the other inputs.
Statements II and IV are true. Statement I is only true for CreditRisk+. Statement II is a characteristic of CreditMetrics and the KMV models. Statement III is a weakness of all portfolio credit models. Statement IV is a characteristic and major advantage of the KMV model.
1、ADC Inc. enters into a plain vanilla interest rate swap contract with Betax Inc. At the 3rd settlement date, ADC is owed $2.5 million but is unable to enforce the contract due to a technicality. This is an example of:
Credit default swaps hedge default risk as well as credit deterioration risk if the swaps are marked-to-market. They don’t, however, hedge market risk because the value of the swap is defined by the credit event. In addition, with regard to operations risk, the credit default swap will provide a hedge if the operational problem is serious enough.
3、An investor purchases 300,000 of ABC Corps bonds with an annual coupon of 8% and maturity of 5 years. The yield is 8% so the bonds are selling at par. The total notional amount of the bonds is $10,000,000. The investor hedges 80% of the position by becoming a total rate of return swap (TROR) payer. ABC’s computer system is hacked and the firm’s bonds decrease in price from $100 to $90. What is the payoff to the TROR total rate of return swap due to the increase in operations risk?
The loss on the investor’s bond position is $3,000,000. The investor has hedged 80% of the position, so they will receive 80% of $3,000,000 or $2,400,000.
($90-$100) x 300,000 = $3,000,000 x 80% =$2,400,000
发表于 2009-6-30 11:38
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