Chapter 11

Question 1

Concentration limits: def + formula

Answer 1

External limit on maximum amount of loan to be made to individual borrower or sector

CL = (max loss as % of capital)*(1/loss rate)

Question 2

Migration analysis def

Answer 2

Analysis that uses information from the market to determine the credit risk of an individual loan or sectoral loans

Question 3

Return and risk of a PF (2 loans)

Answer 3

Rp = X1R1+X2R2

sig_p^2 = X1^2sig_1^2 + X2^2sig_2^2 + 2X1X2*sig_1,2

Question 4

Moody’s analytics PF manager formula

Answer 4

Ri = AIS_i - (EDF_i * LGD_i)

where:
- AIS_i = Spread_i + Fees_i

Sig_i = {EDF_i * (1-EDF_i)}^0.5 * LGD_i