A portfolio consists of two bonds. The credit-VAR is defined as the maximum loss due to defaults at a confidence level of 98% over a one-year horizon.
The probability of joint default of the two bonds is 1.27%, and the default correlation is 30%. The bond value, default probability, and recovery rate are USD 1,000,000, 3%, and 60% for one bond, and USD 600,000, 5%, and 40% for the other. What is the expected credit loss of the portfolio?
A. USD 0
B. USD 9,652
C. USD 20,348
D. USD 30,000