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Consider the Vasicek limiting distribution for losses of a loans portfolio. Now, consider a real portfolio, made of 10 loans each with a different rating class; eg:

  • LN#1 - rating A+
  • LN#2 - rating BB

etc.

The PD to be used in the formula is the simple average of the PDs of the individual loans? What should I consider as "PD" if I took a PD term structure for each rating class?

Thanks!

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