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MEASUREMENT OF CREDIT RISK
What does the Probability of Default (PD) measure in credit risk assessment?
PD measures the likelihood that a borrower will fail to meet their contractual debt obligations within a specified time horizon, typically one year.
What is the Default Mode in credit risk measurement used to estimate portfolio losses?
Model estimating losses only when obligors default.
How is Loss Given Default (LGD) defined under Basel framework?
LGD is the proportion of the exposure that is lost when a borrower defaults, expressed as a percentage of the Exposure at Default (EAD) after recovery of collateral and other mitigants.
What is the Mark-to-Market (MTM) mode in credit risk portfolio models?
Model capturing losses from credit quality deterioration, not just default.
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