Risk Transfer and Control

Part 1: VaR Calculation

You are a Banking and Securities risk analyst. You are asked to estimate the Credit VaR for a risky bond assuming that the bond is valued at $1,000,000 one month forward. The one-year cumulative default probability is 2%.

What is your estimate of the Credit VaR for this bond assuming no recovery?

Recall that Credit VaR is defined as the maximum unexpected loss at a confidence level of 99.9% over a one-month horizon.

Part 2: General Discussion

The advantages of using alternative risk transfers outweigh the disadvantages. Discuss both sides of this argument and support your position with relevant examples. The three types of risk control analytics cannot be used interchangeably because they all have different uses. Discuss. The evolution of risk management is closely tied to the evolution of technology. Do you agree with this assessment? Defend your position on this issue.

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