A corporate bond portfolio manager was overhead asking:“Why do I need a credit risk model. I can get information about the probability of default from credit ratings?” How would you respond to this portfolio manager?
Answer to relevant QuestionsWhat is a common feature of all structural models? How does the treatment of default in structural models and reduced-form models differ? Below are two portfolios with a market value of $500 million. The bonds in both portfolios are trading at par value. The dollar duration of the two portfolios is the same. Answer the below questions. (a) Which portfolio can ...The following excerpt comes from an article titled “Securities Counselors Eyes Cutting Duration” in the February 17, 1992, issue of BondWeek, p. 5: “Securities Counselors of Iowa will shorten the 5.3 year duration on ...Why is there credit risk in a repo transaction?
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