For credit risk calculations, correlation between the asset values of two issuers is often proxied with:

Asset returns are relevant for credit risk models where a default is related to the value of the assets

of the firm falling below the default threshold. When assessing credit risk for portfolios with multiple

credit assets, it becomes necessary to know the asset correlations of the different firms. Since this

data is rarely available, it is very common to approximate asset correlations using equity prices.

Equity correlations are used as proxies for asset correlation, therefore Choice 'c' is the correct

answer.