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Company A has a 2 loan portfolio
Debtor 1 has a loan of 100,000 with collateral of 80,000 and a probability of default of 0.1 and is current with loans.
Debtor 2 has a loan of 200,000 with collateral of 150,000 and a probability of default of 0.1 and is past due.
The assumptions are that all loans that become past due are non-recoverable and there are no recovery costs, and we can obtain full value for the collateral
What is the expected loss of this portfolio, given that there is no correlation between the Debtors?
What are the steps needed to calculate the expected loss of the portfolio (Do I have to first treat both debtors as if they were Past Due)?
I already know that EL = EAD * PD and that EL Portfolio = AVG(EL1 + EL2) but that results in such a small figure that I am doubting myself.
Your help will be greatly appreciated!
Debtor 1 has a loan of 100,000 with collateral of 80,000 and a probability of default of 0.1 and is current with loans.
Debtor 2 has a loan of 200,000 with collateral of 150,000 and a probability of default of 0.1 and is past due.
The assumptions are that all loans that become past due are non-recoverable and there are no recovery costs, and we can obtain full value for the collateral
What is the expected loss of this portfolio, given that there is no correlation between the Debtors?
What are the steps needed to calculate the expected loss of the portfolio (Do I have to first treat both debtors as if they were Past Due)?
I already know that EL = EAD * PD and that EL Portfolio = AVG(EL1 + EL2) but that results in such a small figure that I am doubting myself.
Your help will be greatly appreciated!
