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Q.2899 Assuming that the future values follow a multivariate normal distribution, and the number of exposures is given as 21, determine the netting factor if the average correlation is 0.3. | Financial Risk Manager Part 2 Quiz - LeetQuiz

Explanation:

The correct answer is C.

Recall that the netting factor is given by:

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

Where $n$ is given as 21 and $\bar{\rho}$ is given as 0.3.

Therefore:

\text{Netting factor} = \frac{\sqrt{21 + 21(21 - 1) \cdot 0.3}}{21} = 0.5774

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Q.2899 Assuming that the future values follow a multivariate normal distribution, and the number of exposures is given as 21, determine the netting factor if the average correlation is 0.3.