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FINANCIAL MARKET COURSES

Credit Risk Measurement – EAD & LGD

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 course 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 course 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.

  • OBJECTIVES

    On completion of this course, 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

  • COURSE OUTLINE

    Topic 1: Exposure at Default (EAD)

    What is Exposure at Default (EAD)?

    EAD Formula

    EAD Calculations

    EAD for Revolving Facilities

    EAD for Contingent Obligations

    EAD for Other Products

    EAD: A Note of Caution

    Topic 2: Loss Given Default (LGD)

    What is Loss Given Default (LGD)?

    LGD Formula

    Actual Loss

    Recovery Rates & Actual LGDs

    LGD Drivers

    Determining LGD Values

    Calculating Customer & Facility LGDs

    o Worked Example

    Issues with LGDs

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    60 Minutes

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