Hi David,
The exponential distribution is used to model the time we have to wait until the next event.
So, if for example x=4 years and Lambda=1% , the cumulative probability is 95.123%, it means that the probability that next event will take place in the next 4 years is 95%.
If we use 1-p% we get the probability of more than 4 years?
In question they ask for the default between year 4-5?
Can you please explain?
Thanks,
Orit
The exponential distribution is used to model the time we have to wait until the next event.
So, if for example x=4 years and Lambda=1% , the cumulative probability is 95.123%, it means that the probability that next event will take place in the next 4 years is 95%.
If we use 1-p% we get the probability of more than 4 years?
In question they ask for the default between year 4-5?
Can you please explain?
Thanks,
Orit
