Financial Risk Manager Part 1
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A risk analyst at a banking institution is tasked with evaluating the credit risk linked to various assets in the bank's portfolio. The initial step for the analyst involves estimating the key parameters required for these credit risk assessments. Throughout this process, the analyst encounters several challenges. What accurate insights regarding the estimation of parameters for credit risk assessments will the analyst uncover?
A
The probability of default of a derivative counterparty often increases as the bank's exposure at default with respect to that derivative position increases.
B
The loss given default for a derivative transaction is typically negatively correlated with the counterparty's probability of default.
C
Banks must make both through-the-cycle and point-in-time estimates of loss given default to comply with both regulatory requirements and accounting standards.
D
Current exposure is typically used to estimate exposure at default for a line of credit in order to provide a conservative estimate.