Bank One Corporation - Page 248

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               One common approach during the relevant years for estimating           
          credit exposure was a Monte Carlo simulation.  The basic idea of            
          this approach was to construct a mathematical model to simulate             
          thousands of variations of future movements of a certain interest           
          rate (e.g., 6-month LIBOR rate) and, for each variation, to                 
          calculate the credit exposure at numerous points (e.g., every 3             
          months over the life of the swap).  The model generated a                   
          probability distribution of exposure amounts for each swap, which           
          was used to calculate maximum exposures for multiple confidence             
          intervals.                                                                  
                    3.  Market Data for Pricing Credit Risk of Bonds                  
               The credit quality of an issuer of bonds affects the fair              
          market value of the bonds.  If a bond is traded, this                       
          relationship can be directly observed in the price of the bond.             
               Data on the market prices of traded bonds can be used to               
          estimate the fair market value of nontraded bonds, inclusive of             
          any premium or discount that should be applied for credit risk.             
          Public databases exist which gather information on the traded               
          prices and yields for bonds with different credit ratings and at            
          different maturities.  This information is gathered, and an index           
          of yields is constructed.  The value of a nontraded bond is                 
          calculated by discounting the promised cashflows at the yield for           
          the index of comparably rated bonds with the same maturity.                 








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