How should this problem be approached? Is the joint PD relevant in answering this question?
Suppose Bank Z lends EUR 1 million to X and EUR 5 million to Y. Over the next year, the PD for X is 0.2 and for Y is 0.3. The PD of joint default is 0.1. The loss given default is 40% for X and 60% for Y. What is the expected loss of default in one year for the bank?
Suppose Bank Z lends EUR 1 million to X and EUR 5 million to Y. Over the next year, the PD for X is 0.2 and for Y is 0.3. The PD of joint default is 0.1. The loss given default is 40% for X and 60% for Y. What is the expected loss of default in one year for the bank?