The solution gets to 95th percentile of loss by calcing the probs of the events of defaults = 0, 1, 2, etc, and aggregating and subtracting from one.
I don't get this approach. I defined the 95th percentile as the case of 95 out of the 100 bonds defaulting, in view of increasing loss amounts. Could someone help me understand the correctness of the solution's approach?
I don't get this approach. I defined the 95th percentile as the case of 95 out of the 100 bonds defaulting, in view of increasing loss amounts. Could someone help me understand the correctness of the solution's approach?