Question 1

The value of a CDO (collateralized debt obligation)unambiguously increases when

Accepted Answer

A) The correlation of default amongst the names in the CDO decreases. 
B) The correlation of default amongst the names in the CDO increases. 
C) The intensity of default of names in the portfolio decreases. 
D) The number of names in the CDO decreases. 
A) The correlation of default amongst the names in the CDO decreases. 
B) The correlation of default amongst the names in the CDO increases. 
C) The intensity of default of names in the portfolio decreases. 
D) The number of names in the CDO decreases.

Question 2

Consider two firms,each of which has a distance-to-default of 1.The correlation of default of the two firms is $$\rho = 0.5$$ .Assuming bivariate normality,what is the probability that both firms default?

Accepted Answer

A) 4.50% 
B) 6.25% 
C) 8.75% 
D) 10.25% 
A) 4.50% 
B) 6.25% 
C) 8.75% 
D) 10.25%

Question 3

Consider two firms with hazard rates $$\lambda _ { 1 } = 0.10$$ and $$\lambda _ { 2 } = 0.05$$ .The correlation of their default times is zero.What is the approximate probability that both firms default within five years?

Accepted Answer

A) 5% 
B) 9% 
C) 13% 
D) 17% 
A) 5% 
B) 9% 
C) 13% 
D) 17%

Question 4

Consider two firms with one-year probabilities of default of $$p _ { 1 } = 0.10$$ and $$p _ { 2 } = 0.05$$ ,respectively.The correlation of default of these two firms is $$\rho = 0.30$$ .What is the probability that both firms default in one year?

Accepted Answer

A) 1.0% 
B) 1.5% 
C) 2.0$ 
D) 2.5% 
A) 1.0% 
B) 1.5% 
C) 2.0$ 
D) 2.5%

The value of a CDO (collateralized debt obligation)unambiguously increases when

Consider two firms,each of which has a distance-to-default of 1.The correlation of default of the two firms is $\rho = 0.5$ .Assuming bivariate normality,what is the probability that both firms default?

Consider two firms with hazard rates $\lambda _ { 1 } = 0.10$ and $\lambda _ { 2 } = 0.05$ .The correlation of their default times is zero.What is the approximate probability that both firms default within five years?

Consider two firms with one-year probabilities of default of $p _ { 1 } = 0.10$ and $p _ { 2 } = 0.05$ ,respectively.The correlation of default of these two firms is $\rho = 0.30$ .What is the probability that both firms default in one year?

Overview

Futures Markets

Pricing Forwards and Futures I

Pricing Forwards Futures II

Hedging With Futures Forwards

Interest-Rate Forwards Futures

Options Markets

Options: Payoffs Trading Strategies

No-Arbitrage Restrictions

Early-Exercise/Put-Call Parity

Option Pricing: An Introduction

Binomial Option Pricing

Implementing the Binomial Model

The Black-Scholes Model

Mathematics of Black-Scholes

Beyond Black-Scholes

The Option Greeks

Path-Independent Exotic Options

Exotic Options II: Path-Dependent Options

Value at Risk

Swaps and Floating Rate Products

Equity Swaps

Currency and Commodity Swaps

Term Structure of Interest Rates: Concepts

Estimating the Yield Curve

Modeling Term Structure Movements

Factor Models of the Term Structure

The Heath-Jarrow-Morton Hjmand Libor Market Model LMM

Credit Derivative Products

Structural Models of Default Risk

Reduced-Form Models of Default Risk

Filters

Exam 32: Modeling Correlated Default

The value of a CDO (collateralized debt obligation)unambiguously increases when

Consider two firms,each of which has a distance-to-default of 1.The correlation of default of the two firms is ρ=0.5\rho = 0.5ρ=0.5 .Assuming bivariate normality,what is the probability that both firms default?

Consider two firms with hazard rates λ1=0.10\lambda _ { 1 } = 0.10λ1​=0.10 and λ2=0.05\lambda _ { 2 } = 0.05λ2​=0.05 .The correlation of their default times is zero.What is the approximate probability that both firms default within five years?

Consider two firms with one-year probabilities of default of p1=0.10p _ { 1 } = 0.10p1​=0.10 and p2=0.05p _ { 2 } = 0.05p2​=0.05 ,respectively.The correlation of default of these two firms is ρ=0.30\rho = 0.30ρ=0.30 .What is the probability that both firms default in one year?

Overview

Futures Markets

Pricing Forwards and Futures I

Pricing Forwards Futures II

Hedging With Futures Forwards

Interest-Rate Forwards Futures

Options Markets

Options: Payoffs Trading Strategies

No-Arbitrage Restrictions

Early-Exercise/Put-Call Parity

Option Pricing: An Introduction

Binomial Option Pricing

Implementing the Binomial Model

The Black-Scholes Model

Mathematics of Black-Scholes

Beyond Black-Scholes

The Option Greeks

Path-Independent Exotic Options

Exotic Options II: Path-Dependent Options

Value at Risk

Swaps and Floating Rate Products

Equity Swaps

Currency and Commodity Swaps

Term Structure of Interest Rates: Concepts

Estimating the Yield Curve

Modeling Term Structure Movements

Factor Models of the Term Structure

The Heath-Jarrow-Morton Hjmand Libor Market Model LMM

Credit Derivative Products

Structural Models of Default Risk

Reduced-Form Models of Default Risk

Filters

Consider two firms,each of which has a distance-to-default of 1.The correlation of default of the two firms is $\rho = 0.5$ .Assuming bivariate normality,what is the probability that both firms default?

Consider two firms with hazard rates $\lambda _ { 1 } = 0.10$ and $\lambda _ { 2 } = 0.05$ .The correlation of their default times is zero.What is the approximate probability that both firms default within five years?

Consider two firms with one-year probabilities of default of $p _ { 1 } = 0.10$ and $p _ { 2 } = 0.05$ ,respectively.The correlation of default of these two firms is $\rho = 0.30$ .What is the probability that both firms default in one year?