Hi, Textbook says cost for guarantee is covered under global provision. Why not under individual provision? Thanks!
The solution to question 35.11 says that "Provisions for guarantees may also be set globally". But in other cases they may be set individually as you suggest. Whether the calculation is performed individually or globally will depend on a variety of factors, eg the purpose of the valuation, the accuracy required, the computing power available. Calculating the cost of a guarantee may require stochastic simulations which would be very time consuming to perform on an individual basis. Best wishes Mark
