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(a) Be able to explain the terms: probability of default (pd.) and loss given default (lgd). (b) Explain how banks calculate loan loss distributions given
(a) Be able to explain the terms: probability of default (pd.) and loss given default (lgd). (b) Explain how banks calculate loan loss distributions given default on loans of a particular class. What is the limitation of lgd ("expected loss given default")? What other measures would you use? (c) Given your estimates above, how would you deal with lgd in "normal times" and lgd in a downturn
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