April 08 Q3

Discussion in 'SP1' started by veeko, Apr 11, 2011.

  1. veeko

    veeko Member

    For part (iii), the question asks us to calculate capital requirements using the correlation matrix.

    The solution effectively takes account of each risk with all of the other risks TWICE eg. market risk correlated with default risk is effectively the same as default risk correlated with market risk.

    Is this not double counting?
     

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