What is meant by a lsquolsquohaircut in a collateralization


1. What is meant by a ‘‘haircut'' in a collateralization agreement. A company offers to post its own equity as collateral. How would you respond?

2. Explain the difference between the Gaussian copula model for the time to default and CreditMetrics as far as the following are concerned:

(a) the definition of a credit loss and

(b) the way in which default correlation is modeled.

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Financial Management: What is meant by a lsquolsquohaircut in a collateralization
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