Loss Given Default Models

  • Scandizzo S
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Abstract

Loss Given Default (LGD) is the second key parameter in the Basel formula discussed in Chapter 3. In fact, by looking at the formula, we can notice how the computed capital requirement is linear in the LGD estimate and less than linear (actually concave) in the PD estimate (which is embedded in the copula-like formula for the inverse normal distribution at 99.9% confi dence).

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Scandizzo, S. (2016). Loss Given Default Models. In The Validation of Risk Models (pp. 78–92). Palgrave Macmillan UK. https://doi.org/10.1057/9781137436962_6

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