simple question about credit metrics

[itsyourz]

Hi David,

no.27 in 07 practice exam I

d is that "credit metrics handles full defaults but not partial defaults or recoveries"

i dont know what full default and partial defaults are

d is the answer of this question, which is not a feature of creditmetrics

having a look at what garp explained about the answer, it says CreditMetrics does not consider partial default or rec..

so confused!

help me please,

thanks

suk

 

[David Harper CFA FRM]

Hi suk,

The question has an error (all are true of CM). de Servigny doesn't discuss this. The answer is confused, too, frankly: absorbing state means that eventually all credits must default and is a distinct concept from partial default, which IMO is technical/tricky and definitely not in the 2008 FRM. Your confusion is justified, recommend: skip this question. David