Oh man, I totally read the question wrong. It asked for hazard rate instead of unconditional probs...crap. Thanks. There goes another one. Oh well. No more of this obsessing. This isn't healthy. Thanks!
I am confused though... if they give you a table of CUMULATIVE probs, you can't use Hull's method as is since you'd need marginal probs, no? You'd have to find marginal probs for year 1 and 2 first. So you wouldn't be able to use the probs in the table directly, right? Man, I made way more...
Does anyone remember the following question:
11) Calculate default rate for 3rd year [(1 - year 2 default rate) * ( 1 - year 3 default rate) = (1 - 0.1051)]
Yes. I think I got this one... default intensity = Prob of Default in year 3/probaility of survival for first 2 years = cumulative...
I think it may be cross holding because it may not be deducted at 100%. Investment in own stock (i.e. Treasury Stock) is deducted fully, so that's not the right answer. I don't remember the other answers.
I thought the exam was fair but really not straightforward in several places. I felt like there were a lot of places to make mistakes and answers that were not so straight forward.
1) The barrier question becomes straightforward when you recognize that the 2 barrier call premiums will sum to a...
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