Reddit

Q.2905 Given that the number of exposure is 17 and the average correlation is 0.7, determine the netting factor if the assumption is that the future values follow a multivariate normal distribution. | Financial Risk Manager Part 2 Quiz - LeetQuiz

Explanation:

Recall that the netting factor is given by:

\text{Netting factor} = \frac{\sqrt{n + n(n - 1)\bar{\rho}}}{n}

n is given as 17 and $\bar{\rho}$ is given as 0.7. Therefore:

\text{Netting factor} = \frac{\sqrt{17 + 17(17 - 1)0.7}}{17} = 0.85

Comments (0)

No comments yet.

Financial Risk Manager Part 2

Get started today

Comments (0)

Get started today

Q.2905 Given that the number of exposure is 17 and the average correlation is 0.7, determine the netting factor if the assumption is that the future values follow a multivariate normal distribution.

Comments (0)