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April 2012 #9iv

M

MindFull

Ton up Member
Good Day,

I'm not understanding the logic used to calculate the max. double default rate. The Examiners report stated that double default can't happen at a rate faster than the min. of the 2 intensities. I'm a bit confused by this.

Thanks much.
 
It's like saying the time taken for two runners to cross the finishing line can't be less than the slowest runner's time.
 
Thanks Mike.

So basically, double default can only occur after the 'slower' bond defaults -- which has the smaller transition intensity.

Thanks again for answering my questions Mike.

:)
 
i'd think 'the time taken for two runners to cross the finishing line could not be less than the fastest runner's time'? ( thinking of olympic records).

Acted material says 'the maximum double-default rate will occur when there's perfect correletion' btw Bonds A and B. So, i'd interpret it as 'if Bond A defaults (which has a higher risk-neutral probability of default) then Bond B will follow...'
so, i'd think it is max (lambda A, lambda B). it is so confusing...
 
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