Can’t understand why in evaluating a credit VAR we need to concentrate on the upper tale of returns distribution … What if we hold a bond portfolio, which will fall when interest rates rise - this is the case of negative return. But at the same time credit risk will most likely rise!!! The same is true for currency swaps … Any ideas? I also cant get why Schweser talking about MBS whose value will be capped when interest rates will fall use it as an argument why we need to concentrate on the upper tale?
This has been discussed http://www.analystforum.com/phorums/read.php?13,692867,693319#msg-693319