Which of the following isnot a reason to favor the top-down approach to modeling correlated default versus the bottom-up approach?
A)The loss distribution in simple cases is easy to compute in closed-form.
B)The computational complexity of the top-down approach is far less than that of the bottom-up one.
C)It is easier to model CDOs on CDOs.
D)It enables breaking down the portfolio loss name by name.

Question

Quizplus · Accepted Answer

The top-down approach models the portfolio level loss directly,not by name.As a result,name by name loss is not a natural output of the analysis.There are additional ways to drill down to a name level loss,but these are somewhat computationally complex,and ad-hoc.All the other three answers do correctly reflect advantages of the top-down approach relative to the bottom-up one.

Which of the Following Isnot a Reason to Favor the Top-Down