Financial Risk Manager Part 2
Get started today
Ultimate access to all questions.
Ultimate access to all questions.
In a bank's credit portfolio, a credit analyst is responsible for calculating the credit Value at Risk (CVaR) for three distinct loans. The analyst has compiled the following data on these loans:
| Loan | Maturity (years) | Exposure (SGD) | Loss given default | S&P rating |
|---|---|---|---|---|
| S | 2 | 55,000,000 | 0.8 | BBB |
| T | 3 | 36,000,000 | 0.9 | BB- |
| U | 4 | 50,000,000 | 0.7 | A |
Furthermore, the annual probability of default (PD) for loans is specified according to their rating and maturity in the following table:
| Loan maturity (years) | 2 | 3 | 4 |
|---|---|---|---|
| PD (investment grade) | 1.5% | 2.5% | 3.5% |
| PD (non-investment grade) | 5.0% | 12.0% | 18.0% |
Assuming the 95th percentile of the unrecovered credit loss for all three loans is the same, which of the following statements correctly compares the 95% CVaR among the loans?