Financial Products & Associated Risk Management
Credit Risk Measurement - Part 2
Exposure at default (EAD) and loss given default (LGD) are core components of the credit risk measures used to determine bank capital requirements (risk-weighted assets) and to manage credit risk (expected loss). This tutorial describes the fundamentals of EAD as a measure of credit risk, the calculation of EAD values, and the issues to be considered when calculating EAD. The tutorial also explains the role of loss given default (LGD) in measuring credit risk, the steps involved in calculating LGD rates, and the key factors that influence LGD values.
On completion of this tutorial, you will be able to:
- Calculate EAD for credit facilities and outline the key issues associated with EAD as a measure of credit risk
- Calculate LGD and describe the key drivers behind LGD values
Topic 1: Exposure at Default (EAD)
Topic 2: Loss Given Default (LGD)