A
ActStudent1405
Member
The answer to the TVaR calculation for portfolio A is as follows:
TVaR97.5%A = (-20 * 0.5% * 5,000 + 20 * 2% * 100,000) / 2.5%
Can I confirm that the percentages in the numerator are allocated: an expected default in one year’s time (assuming a binomial distribution) of 2% and the remaining probability of 0.5% that the bond will not default? Why is this assumption made?
TVaR97.5%A = (-20 * 0.5% * 5,000 + 20 * 2% * 100,000) / 2.5%
Can I confirm that the percentages in the numerator are allocated: an expected default in one year’s time (assuming a binomial distribution) of 2% and the remaining probability of 0.5% that the bond will not default? Why is this assumption made?