Explanation:
The Expected Loss (EL) is calculated as .
For Counterparty DD, the Unstressed EL is given as 1.9500 million (calculated as $1.00% \times `).
The Stressed EL is calculated using the Stressed PD:
Stressed EL = 1.60\% \times \`300.00 \times 65.0\% = \.
The Stress Loss is the difference between the Stressed EL and the Unstressed EL:
Stress Loss = \`3.12 \text{ million} - \1.95` \text{ million} = \`1.17 \text{ million} = \.
Therefore, the correct answer is C.
Ultimate access to all questions.
707.3. The following table illustrates how a financial institution might reconsider its stress test of current exposure in an expected-loss framework:
# PD Stress: dotcom crash (based on Lynch's Table 4.2)
| | PD | EPE | LGD | EL | Stressed PD | Stressed EL | Stress Loss |
|----------------|----------|----------|----------|----------|-------------|-------------|-------------|
| | | (mm) | | (mm) | | (mm) | (mm) |
| Counterparty AA| 0.05% | `$213.00` | 70.0% | `$0.07`46 | 0.50% | `$0.74`55 | `$0.67`10 |
| Counterparty BB| 0.03% | 202.50 | 60.0% | 0.0365 | 0.30% | 0.3645 | 0.3281 |
| Counterparty CC| 0.45% | 75.00 | 70.0% | 0.2363 | 0.62% | 0.3255 | 0.0893 |
| Counterparty DD| 1.00% | 300.00 | 65.0% | 1.9500 | 1.60% | | ??? |
# PD Stress: dotcom crash (based on Lynch's Table 4.2)
| | PD | EPE | LGD | EL | Stressed PD | Stressed EL | Stress Loss |
|----------------|----------|----------|----------|----------|-------------|-------------|-------------|
| | | (mm) | | (mm) | | (mm) | (mm) |
| Counterparty AA| 0.05% | `$213.00` | 70.0% | `$0.07`46 | 0.50% | `$0.74`55 | `$0.67`10 |
| Counterparty BB| 0.03% | 202.50 | 60.0% | 0.0365 | 0.30% | 0.3645 | 0.3281 |
| Counterparty CC| 0.45% | 75.00 | 70.0% | 0.2363 | 0.62% | 0.3255 | 0.0893 |
| Counterparty DD| 1.00% | 300.00 | 65.0% | 1.9500 | 1.60% | | ??? |
What should be the Stress Loss value (cell indicted by "???") for Counterparty DD?
A
$420,000
B
$935,500
C
$1,170,000
D
$4,800,000
No comments yet.