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in Chapter 23 of Hull's Options, Futures, and Derivatives he has an example (i.e. example 23.4) which shows how the Credit VaR formula is applied. The answer in the formula is 0.128. I can't seem to get the same answer since the N that get is either ±3.1951 or ±1.1351. It seems I need to get a distribution of N(0.551) = 0.128. May I ask how should be formula be understood? Thanks.enter image description here

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Here is the excel formula with steps:

=NORMSDIST((NORMSINV(0.02)+NORMSINV(0.999)×SQRT(0.1))/SQRT(1−0.1))

=NORMSDIST((−2.054+3.09×SQRT(0.1))/SQRT(1−0.1))

=NORMSDIST(-1.135)

=12.8%

They keep changing the names of the function - e.g., NORMSDIST is NORM.S.DIST(-1.135,TRUE)in the recent versions, and same for NORMSINV = NORM.S.INV

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  • $\begingroup$ I see, now I understand. Thank you very much. $\endgroup$ – James Bantayan Dec 22 '19 at 23:25

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