Loss given default
Loss given default or LGD is the share of an asset that is lost if a borrower defaults.
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It is a common parameter in risk models and also a parameter used in the calculation of economic capital, expected loss or regulatory capital under Basel II for a banking institution. This is an attribute of any exposure on bank's client. Exposure is the amount that one may lose in an investment.
The LGD is closely linked to the expected loss, which is defined as the product of the LGD, the probability of default (PD) and the exposure at default (EAD).
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