Skip to main content

Fundamentals of credit - lecture #2

Published on April 27, 2016   24 min

Other Talks in the Category: Technology & Operations

Hello, my name is Marwa Hammam. I'm the Executive Director of the Master of Finance Program at Cambridge University. In today's talk, I'm going to be carrying on form the discussion that we started around the credit equation, looking at probability of default, loss given default more closely, and then, looking at linkages between credit and market risk, which are fundamentally important as established by the requirements under Basel II and three and beyond.
So going back to our discussion last time on excepted credit loss and the components that drive them, and we've established those are largely at the probability of default, and a very good proxy for which is the risk creating of the counterparty. Loss given default, which is defined as one minus the recovery rate. There are preset parameters, as I mentioned in the previous talk, whereby the Basel court required a 45 percent loss given default charge in the event of collateralized exposure. And 75 percent loss given default for subordinated exposures.