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Finance, Economics, and Mathematics by Robert C. Merton, Oldrich A. Vasicek

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Part FourCredit

The probability of loss on a homogeneous portfolio of corporate loans converges with the number of loans c04-math-001 to the distribution function

equation

where L is the portfolio gross loss, p is the probability of default on any one loan, and ρ is the correlation coefficient between the asset values of any two of the borrowing companies. (page 148)

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