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Q.2651 A bank has issued loans to two companies- A and B. The probabilities of default of A and B are 5% and 10%, respectively. What is the joint probability of default for the two companies if their default correlation is 0.6? | Financial Risk Manager Part 2 Quiz - LeetQuiz

Explanation:

P D = \rho(AB) \sqrt{P D(A)(1 - P D(A))} \times P D(B)(1 - P D(B)) + P D(A)P D(B)

Joint probability of default = $0.6\sqrt{0.05(1 - 0.05)} \times 0.10(1 - 0.10) + 0.05 \times 0.10 $Joint probability of default = `$ 0.6`\sqrt{0.004275} + 0.0050$
Joint probability of default = 4.42%

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Q.2651 A bank has issued loans to two companies- A and B. The probabilities of default of A and B are 5% and 10%, respectively. What is the joint probability of default for the two companies if their default correlation is 0.6?