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Q.2693 Given the following information about two credits: Probability of default of credit 1 $\pi_1 = 0.004$ Probability of default of credit 2 $\pi_2 = 0.010$ What is the joint probability of default if the default correlation is 10%? | Financial Risk Manager Part 2 Quiz - LeetQuiz

Explanation:

\pi_{12} = \rho_{12} \sqrt{\pi_1 (1 - \pi_1)} \sqrt{\pi_2 (1 - \pi_2)} + \pi_1 \pi_2

= 0.1 \sqrt{0.004(0.996)} \sqrt{0.010(0.99)} + (0.004)(0.01)

= 0.000668

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Financial Risk Manager Part 2

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Q.2693 Given the following information about two credits: Probability of default of credit 1 $\pi_1 = 0.004$ Probability of default of credit 2 $\pi_2 = 0.010$ What is the joint probability of default if the default correlation is 10%?

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Financial Risk Manager Part 2

Get started today

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Get started today

Q.2693 Given the following information about two credits: Probability of default of credit 1 π1=0.004\pi_1 = 0.004π1​=0.004 Probability of default of credit 2 π2=0.010\pi_2 = 0.010π2​=0.010 What is the joint probability of default if the default correlation is 10%?

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Q.2693 Given the following information about two credits: Probability of default of credit 1 $\pi_1 = 0.004$ Probability of default of credit 2 $\pi_2 = 0.010$ What is the joint probability of default if the default correlation is 10%?