Statement I is incorrect. Credit VaR is the maximum credit loss at a given confidence level (or minimum credit loss at a given significance) over a time period. Statment II is correct. Statment III is incorrect. Credit VaR assumes normal distribution, while changes in the credit quality of investment grade bonds tend to follow a lognormal distribution. This is a disadvantage of credit VaR. Statement IV is incorrect. Migration correlations are needed in CreditMetrics to estimate the joint migration of dependent bonds. |
