708.1. Thomas is your firm's Counterparty Credit Risk (CCR) Manager, and he is analyzing the credit risk of a portfolio that consists of two sub-portfolios: a traditional pool of funded loans plus a sub-portfolio consisting of unfunded but collateralized credit derivative positions. For each traditional loan, he calculates the expected loss (EL) as the product of its probability of default, p(i), exposure at default, EAD(i), and loss given default, LGD(i). Consequently, expected loss for the sub-pool of (n) traditional loans is given by:

$$EL = \sum_{n=1}^{N} p_i \cdot EAD_i \cdot LGD_i$$

In addition to estimating expected loss for the traditional loan pool and the credit derivative portfolio, Thomas wants to estimate the "stress loss" for the entire portfolio where the "stress loss," SL, is the difference between the portfolio's stressed expected loss, EL(s), and its expected loss; i.e., SL = EL(s) - EL. This exercise will require developing an expected loss and a stressed expected loss for the credit derivatives sub-portfolio in order that expected losses and stressed expected losses can be summed across the two sub-portfolios. If he begins with the traditional expected loss (EL) calculation above and modifies it in order to produce a CCR-type version of the stressed EL, EL(s), for the derivatives sub-portfolio, then he is likely to make each of the following modifications to the formula EXCEPT which is probably NOT appropriate?