If a zero correlation of default exists between the different securities and the loan,the equity tranche may have no hope of being paid.

Question

Quizplus · Accepted Answer

A zero correlation of default between different securities and the loan suggests that the defaults are independent of each other, which can actually benefit the equity tranche by reducing the likelihood of simultaneous defaults, thereby potentially preserving some value for equity tranche payments.

If a Zero Correlation of Default Exists Between the Different