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Modelling Stressed Losses Given Default (LGD's) for Macroeconomic Scenarios

Recent regulatory trends have forced banks to develop new probability of default (PD), loss given default (LGD) and exposure at default (EAD) models.

While validated stressed PD models are already on offer, efforts to properly model LGDs as a function of macroeconomic drivers are still in their infancy.

This white paper explores a validated model for stressed LGD's. It further provides a practical solution for banks and other financial institutions that require public firm LGD estimates for risk management and compliance purposes.