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Credit Risk Measurement and Management
Credit Risk Measurement and Management
Hard
A credit portfolio of 200 identical loans each has PD = 2% and EAD = $5M. If the asset correlation among borrowers increases from 0.10 to 0.25, the impact on the portfolio's 99.9% credit VaR is most likely:
A
A significant increase, because higher correlation concentrates losses in the tail even though expected loss is unchanged
B
A significant decrease, because higher correlation means more diversification benefit
C
No change, because VaR depends only on individual PDs and LGDs, not on correlations
D
A moderate decrease, because higher correlation reduces the number of independent risk factors
Select an answer to continue
Tags
#default-correlation
#portfolio-credit-risk
#var
#tail-risk
#concentration
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