Explanation

Credit VaR (CVaR) is calculated as:

CVaR = 99th percentile of unrecovered credit loss - Expected Loss (EL)

Step 1: Calculate the 99th percentile of unrecovered credit loss

• Face value = CNY 630 million
• Value at 99% confidence level = CNY 567 million
• Recovery rate = 90%

Unrecovered credit loss at 99th percentile = (630 - 567) × (1 - 0.9) = 63 × 0.1 = CNY 6.3 million

Step 2: Calculate Expected Loss (EL)

• Probability of Default (PD) = 6%
• Loss Given Default (LGD) = 1 - Recovery Rate = 1 - 0.9 = 0.1
• Exposure at Default (EAD) = CNY 630 million

EL = PD × LGD × EAD = 0.06 × 0.1 × 630 = CNY 3.78 million

Step 3: Calculate Credit VaR

CVaR = 6.3 - 3.78 = CNY 2.52 million

Why other options are incorrect:

• B (CNY 3.40 million): Incorrect calculation that doesn't properly account for the relationship between EL and CVaR
• C (CNY 3.78 million): This is the Expected Loss, not the Credit VaR
• D (CNY 6.30 million): This is the 99th percentile of unrecovered credit loss before subtracting Expected Loss