Financial Risk Manager Part 2

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Explanation:

WCDR (T,X) Or WC DR(X, T) indicates the Xth percentile of the default rate distribution during a period of length T. Its components are as follows:

\text{WC DR} = N \left[ \frac{N^{-1}(PD) + \sqrt{\rho} N^{-1}(X)}{\sqrt{1 - \rho}} \right]

Given:

Using a standard normal distribution table or a calculator, we find:

Plugging these values into the formula, we get:

\begin{aligned} \text{WC DR} &= N \left( \frac{-2.33 + \sqrt{0.1216} \cdot 3.09}{\sqrt{1 - 0.1216}} \right) \\ &= N(-1.3364) \end{aligned}

Using the standard normal cumulative distribution function, we find:

\text{WC DR} \approx N(-1.3364) \approx 1 - 0.9093 = 0.0907

\begin{aligned} EL &= \sum EAD_i \times LGD_i \times PD_i \\ &= 690 \times 0.4 \times 0.01 = 2.76 \end{aligned}

Explanation:

WCDR (T,X) Or WC DR(X, T) indicates the Xth percentile of the default rate distribution during a period of length T. Its components are as follows:

\text{WC DR} = N \left[ \frac{N^{-1}(PD) + \sqrt{\rho} N^{-1}(X)}{\sqrt{1 - \rho}} \right]

Given:

Using a standard normal distribution table or a calculator, we find:

Plugging these values into the formula, we get:

\begin{aligned} \text{WC DR} &= N \left( \frac{-2.33 + \sqrt{0.1216} \cdot 3.09}{\sqrt{1 - 0.1216}} \right) \\ &= N(-1.3364) \end{aligned}

Using the standard normal cumulative distribution function, we find:

\text{WC DR} \approx N(-1.3364) \approx 1 - 0.9093 = 0.0907

\begin{aligned} EL &= \sum EAD_i \times LGD_i \times PD_i \\ &= 690 \times 0.4 \times 0.01 = 2.76 \end{aligned}

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Last updated: July 5, 2026 at 07:21

0.0907 and $2.76 million

0.1216 and $44.15 million

0.8784 and $4.83 million

0.0907 and $25.03 million