Which of the following isnot a reason to favor the top-down approach to modeling correlated default versus the bottom-up approach?
A) The loss distribution in simple cases is easy to compute in closed-form.
B) The computational complexity of the top-down approach is far less than that of the bottom-up one.
C) It is easier to model CDOs on CDOs.
D) It enables breaking down the portfolio loss name by name.

Question

Which of the following isnot a reason to favor the top-down approach to modeling correlated default versus the bottom-up approach? 
A) The loss distribution in simple cases is easy to compute in closed-form.
B) The computational complexity of the top-down approach is far less than that of the bottom-up one.
C) It is easier to model CDOs on CDOs.
D) It enables breaking down the portfolio loss name by name.

Quizplus · Accepted Answer

The top-down approach models the portfolio loss as a whole rather than on an individual name basis, which is a characteristic of the bottom-up approach. Therefore, breaking down the portfolio loss name by name is not a reason to favor the top-down approach.

Which of the Following Isnot a Reason to Favor the Top-Down