The credit migration approach to assessing portfolio credit risk involves obtaining a distribution of

future portfolio values from the ratings migration matrix. First, the frequencies in the matrix are used

as probabilities, and expected future values of the securities belonging to each rating category are

calculated. These are then discounted to the present using the discount rate appropriate to the

'future' rating category. This gives us a forward distribution of the value of each security in the

portfolio. These are then combined using the default correlations between the issuers. The default

correlation between the issuers is often proxied using asset returns, and recognizing that default

occurs when asset values fall below a certain threshold. A distribution for the future value of the

portfolio is generated using simulation, and from this distribution the Credit VaR can be calculated.

Thus, we need the migration matrix, the risk horizon from which the present values need to be

calculated, and the forward yield curve or the discount curve for each rating category for the risk

horizon. Thus, Choice 'd' is the correct answer.