n?u=RePEc:bde:wpaper:1526&r=all

repec.nep.mac

n?u=RePEc:bde:wpaper:1526&r=all

The covariance between the synthetic asset F and equity (where f(η, V E ) is the joint

density function of the aggregate credit risk and the equity risk) is given by

σ FE =

σ FE =

∫ ∞ ∫ ∞

−∞ −∞

∫ ∞ ∫ (d−X n )

−∞

−∞

min(d, X n + η)V E f(η, V E )dηdV E

(X n + η)V E f(η)dη +

∫ ∞

(d−X n )

V E (X n + η)f(η)dη − f d X n

Due to the multivariate density function we can not obtain analytical solutions.

However, note that F = Y n if η

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