Internal LGD Estimation in Practice: Wilmott Magazine Article – Peter Glößner, Achim Steinbauer, Vesselka Ivanova

Driven by a competitive market and motivated by the new Basel Capital Accord (Basel II), banks have put a lot of effort into development and improvement of their methods to assess the creditworthiness of their obligors and to deduce the probability of default (PD). However, not only the probability of default but also the economic loss in the case of default have to be estimated to quantify credit risk and to calculate the Basel II capital requirements under the advanced approach.

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