easy · FRM Part 2 Credit Risk
What is the mathematical requirement for the sum of all probabilities in any single row of a transition matrix?
- The sum must equal 1.0.
- The sum must equal the average probability of default (PD) for that year.
- The sum must equal the total number of rating grades in the system.
- The sum must be less than 1.0 to account for unexpected losses.
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