Credit Risk, Operational Risk, and Stress Testing
Free GARP FRM Part I lesson in Valuation and Risk Models. 23 min read, ~3,442 words.
Expected loss (EL) = PD × LGD × EAD, priced into spreads and absorbed by reserves. Unexpected loss (UL) is the volatility of losses around EL, absorbed by economic capital (never set capital equal to EL). Single-asset UL under binomial default with deterministic LGD:. Portfolio UL rises with default correlation...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
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