PPT Slide
Market returns are relatively symmetrical.
- Approximated by a normal distribution – only two statistical
measures are needed: mean and standard deviation.
The returns to credit risk tend to be skewed since there is limited upside
appreciation but subject to large losses on downgrade and default risks.
- Though downgrade and default may have a remote probability of
occurring, their ability to produce large losses contributes to the
showed distribution of credit returns, producing large downside tails.