question archive For a maturity of T = 1 year, let the default probability of a rm be p = 0:1
For a maturity of T = 1 year, let the default probability of a rm be p = 0:1
Subject:StatisticsPrice: Bought3
For a maturity of T = 1 year, let the default probability of a rm
be p = 0:1. De ne an indicator variable d = 1 if default occurs and d = 0 if
default does not occur.
(a)
What is E(d)?
(b)
What is V ar(d)?
7. Given two rms with default probabilities p1 = 0:1, p2 = 0:2. The correlation of joint
default (d1; d2) = 0:5 where d1; d2 are indicator variables for
default of each rm. What is the probability of both rms defaulting?
8.
If Pr[d1 d2] = 0:08 and p1 = 0:1, p2 = 0:2, what is Pr(d1jd2) and Pr(d2jd1)?
Note the not so obvious outcome that a very small probability of
joint default may actually underlie a high probability of conditional default.
9. Given two rms, if the probability of neither defaulting is 80% and
the probability of each defaulting is p1 = 0:1 and p2 = 0:2, what is the probability of both defaulting?
10. If Pr(d1 d2) = 0:01 and p1 = 0:1; p2 = 0:2, what is the probability of exactly one default?
