Unexpected Loss Formula

[suryaa]

Dear David,

In your credit risk notes (Page 57), LGD has been squared, while determining the UL.
Ditto approach has been followed in the Ong spreadsheet posted.

However, in slides 105 and 108 of credit_a part 2, and also in your video version, LGD has been taken as it is, without squaring.

I am not sure if I have read it right; or, am I missing something?

Please help in clarifying.

Best Regards
Surya

 

[David Harper CFA FRM]

Hi Surya

It should be squared. (the notes, the XLS are correct). I noticed the error after recording the video (I thought the PDF slides were corrected. The PDF slides should have it squared). Alas, it is impossible to edit video. I'll post an errata, apologies (although so far there have been few errors).

David

 

[David Harper CFA FRM]

Surya,

I added this forum section (an errata) so this sort of thing is easy to track:
http://forum.bionicturtle.com/viewthread/413/

In my defense , i realize my error was due copying Ong's error: his formula 5.2 on page 113 incorrectly omits the square...

David