the 95% percentile corresponds to a downgrade to BBB

问题如下：

At the beginning of the year, a firm bought an AA-rated corporate bond at USD 110 per USD 100 face value. Using market data, the risk manager estimates the following year-end values for the bond based on interest rate simulations informed by the economics team:

In addition, the risk manager estimates the 1-year transition probabilities on the AA-rated corporate bond:

What is the 1-year 95% credit VaR per USD 100 of face value closest to?

选项：

A.

USD 9

B.

USD 18

C.

USD 30

D.

USD 36

解释：

The 95% credit VaR corresponds to the unexpected loss at the 95th percentile minus the expected loss, or the expected future value at the 95% loss percentile minus the current value. Using the probabilities in the given ratings transition matrix, the 95% percentile corresponds to a downgrade to BBB, at which the value of the bond would be estimated at 101. Since cash flows for the bond are not provided, we cannot derive the precise expected and unexpected losses, but the credit VaR (the difference) is easily derived by subtracting the estimated value given a BBB rating from the current value. 95% credit VaR = 110 – 101 = 9.