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I think Toy's correct. Netting factor should tend towards 0 instead then in which case it looks like I changed my answer to an incorrect answer... *sigh*

For the benefits of diversification, this is what annoys me about GARP. The quesion doesn't really test your understanding of risk management. It's one of their 'sneaky' questions for want of a better term. Any risk manager should know that diversification benefits plateaus with an increase in...

I think I chose both decrease. I kinda remember something about how mezzanine debt at high levels of default rates acts like senior bonds when pd increases holding correlation constant. The opposite is true i.e. it acts like equity when pd rates are low? Given t was in 'times of distress' I...

Y was diversification benefits and I think X axis was N?

I came to the same conclusion as a.lesner. I actually circled B first because that was the logical answer but then the question threw me off as it also stated that diversification benefits was defined as 1-netting factor and the netting factor tends towards 1 as n increases so I changed my...