Difference between revisions of "LGD Risk"

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(Created page with "== Definition == '''LGD Risk''' denotes the risk that following a Default Event, contracts of the defaulting entity cannot be honoured in full, thereby leading to financi...")
 
 
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== Issues and Challenges ==   
 
== Issues and Challenges ==   
* Large corporates and sovereigns are diversified entities with sufficient financial means, this imply that default events are actually fairly rare. This paucity of data makes the prediction of possible recoveries in case of default rather challenging. This is denoted as the [[Low Default Portfolios]] problem
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* [[Large Corporates]] and sovereigns are diversified entities with sufficient financial means, this imply that default events are actually fairly rare. This paucity of data makes the prediction of possible recoveries in case of default rather challenging. This is denoted as the [[Low Default Portfolios]] problem
  
 
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[[Category:LGD Models]]
 
[[Category:LGD Models]]

Latest revision as of 17:49, 11 October 2019

Definition

LGD Risk denotes the risk that following a Default Event, contracts of the defaulting entity cannot be honoured in full, thereby leading to financial loss to the lender or other counterparty. The precise loss fraction is now known. LGD risk is synonymous to Recovery Risk and many Loss Given Default models (as listed in the Catalog of Loss Given Default Models) explicitly introduce and aim to model this uncertainty.

Issues and Challenges

  • Large Corporates and sovereigns are diversified entities with sufficient financial means, this imply that default events are actually fairly rare. This paucity of data makes the prediction of possible recoveries in case of default rather challenging. This is denoted as the Low Default Portfolios problem

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