Explanation:
The following formula is used to calculate expected loss using VaR/EC models:
expected loss = probability of default (PD) × loss given default (LGD) × exposure at default (EAD)
Credit default is not a specific component included in this calculation.
(Book 4, Module 52.1, LO 52.c)
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Question 34
A fund manager is using value at risk/economic capital (VaR/EC) models to incorporate expected losses into her stress testing models. In deriving her outputs for expected losses, she will include all of the following measures of default except:
A
credit default.
B
loss given default.
C
exposure at default.
D
probability of default.
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