8008 Exam Dumps | Conditional default probabilities modeled under CreditPortfolio view use a:

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PRM Certification - Exam III: Risk Management Frameworks, Operational Risk, Credit Risk, Counterparty Risk, Market Risk, ALM, FTP - 2015 Edition
PRMIA.8008.v2021-08-28.q125
Question 77

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Question 77/125

Conditional default probabilities modeled under CreditPortfolio view use a:

A. Power function

B. Altman's z-score

C. Probit function

D. Logit function

Correct Answer: D

Explanation
Conditional default probabilities are modeled as a logit function under CreditPortfolio view. That ensures the resulting probabilities are 'well behaved', ie take a value between 0 and 1. The probability may be expressed as
= 1/ (1 + exp(I)), where I is a country specific index taking various macro economic factors into account.

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