A bank has a loan with an exposure at default (EAD) of USD 66 million.
The probability of default (PD) is 1.5% with a standard deviation of 3%, while the loss given default (LGD) is 22% with a standard deviation of 11%.
Assume PD and LGD are independent random variables and define unexpected loss as the standard deviation of the credit loss.
What is the loan's unexpected loss?
The probability of default (PD) is 1.5% with a standard deviation of 3%, while the loss given default (LGD) is 22% with a standard deviation of 11%.
Assume PD and LGD are independent random variables and define unexpected loss as the standard deviation of the credit loss.
What is the loan's unexpected loss?