Financial Risk Manager Part 1
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Q-99.
The correlation between each pair of Ui distributions is equal to a². Which of the following statements is correct about the default probabilities and the common factor F in the context of the model described?
Q-99.
The correlation between each pair of Ui distributions is equal to a². Which of the following statements is correct about the default probabilities and the common factor F in the context of the model described?
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A
The default probabilities are each mapped to the standard normally distributed variable Ui, and values in the extreme right tail represent default.
B
High values of F indicate a weak economy, and low values of F indicate a strong economy.
C
F is a unique factor that varies for each loan in the portfolio.
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