Credit Risk

Free CFA Level I lesson in Fixed Income. 12 min read, ~1,808 words.

Expected Loss = POD × LGD × Exposure, where LGD = 1 − Recovery Rate. POD and LGD are estimates, not observables, so equal POD does not mean equal loss. Investment grade is BBB−/Baa3 and above; speculative ("high yield" or "junk") is BB+/Ba1 and below. The three NRSROs are S&P...