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Initial post: Aug 22, 2013 10:50:52 AM PDT
I did not understand how the 0.12% number, which is the forecasted probability of default of a particular AAA rated CDO, is compared to the 28% number, which, I believe, is the ratio of the number of AAA rated CDOs that actually defaulted to the total number of AAA rated CDOs over some 5 year period. Doesn't using the second number to test the first one assume independence between the different CDOs? Would P(AAA|Default) be a better measure than P(Default|AAA) in this case?
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