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Financial Risk Manager Part 2

Financial Risk Manager Part 2

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A financial company has provided protection against defaults for the senior tranche of a Collateralized Debt Obligation (CDO). Originally, the correlation of defaults among the underlying assets in the CDO was higher and used to price the different tranches of the CDO. Now, if the correlation of defaults among these assets significantly decreases while all other parameters remain unchanged, how will this change impact the financial firm's position?

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