Financial Risk Manager Part 1

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Answer: 0.06258147

The correct answer is 0.06258147 as shown in the solution. This formula calculates the standard deviation of losses for an individual loan, which considers the probability of default, exposure amount, and recovery rate. The standard deviation represents the volatility or uncertainty in potential credit losses.

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Answer: 0.06258147

Author: LeetQuiz Editorial Team

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Q-108. Calculate the standard deviation of losses for an individual loan using the formula: $\sigma_i = \sqrt{p_i - p_i^2(L_i(1 - R_i))}$ where p_i = probability of default, L_i = exposure at default, R_i = recovery rate

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0.052341

0.058274

0.061892

0.06258147

Financial Risk Manager Part 1

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Q-108. Calculate the standard deviation of losses for an individual loan using the formula: σi=pi−pi2(Li(1−Ri))\sigma_i = \sqrt{p_i - p_i^2(L_i(1 - R_i))}σi​=pi​−pi2​(Li​(1−Ri​))​ where p_i = probability of default, L_i = exposure at default, R_i = recovery rate

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Q-108. Calculate the standard deviation of losses for an individual loan using the formula: $\sigma_i = \sqrt{p_i - p_i^2(L_i(1 - R_i))}$ where p_i = probability of default, L_i = exposure at default, R_i = recovery rate