Expectation Measure
Definition
An Expectation Measure in the context of Risk Management is any Risk Metric that is formed through the construction of a (explicitly mathematical or implicit) expectation around a Risk Distribution
Expected Credit Loss
Expectations of future credit losses play a key role in IFRS 9 / CECL based Credit Portfolio Management. Mathematically and conceptually expectations are formed at a given time t by averaging the projected outcomes of random variables under different scenarios (with different probabilities), given an information set available at the time t. These aforementioned standards requires specifically that comprehensive credit risk information must incorporate not only past due information but also all relevant credit information, including forward-looking macroeconomic information.
Usage
In the context of a Credit Network mode the following expectations are computed
- Credit Default Expectations at the Risk Horizon
- Credit Recovery Expectations at the Risk Horizon
- Composite metrics such as Expected Credit Loss and Loss Allowance
In principle expectations can be computed at any timepoint. Yet this becomes progressively more expensive calculation the more timepoints it is applied to.
