Financial Risk Manager Part 2

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Explanation:

First, we calculate normal expected loss,

The Expected Loss is given by:

\text{EL} = \sum_{i=1}^{n} \text{PD}_i \times \text{EAD}_i \times \text{LGD}_i

= 7,000,000 \times 0.06 \times (1 - 0.8) + 9,000,000 \times 0.05(1 - 0.9)

= \`$129`,000

Where:
$\text{PD}_i$ = Probability of default
$\text{EAD}_i$ = Exposure at default
$\text{LGD}_i$ = Loss given default

We can then calculate the stressed expected loss:

\text{EL}_s = \sum_{i=1}^{n} \text{PD}^s_i \times \text{EAD}_i \times \text{LGD}_i

= 7,000,000 \times 0.12 \times (1 - 0.8) + 9,000,000 \times 0.18(1 - 0.9)

= \`$330`,000

Where:
$\text{PD}^s_i$ = Stressed probability of default

The stress loss for the loan portfolio is thus given by:

\text{EL}_s - \text{EL} = \`$330`,000 - \`$129`,000 = \`$201`,000

Explanation:

First, we calculate normal expected loss,

The Expected Loss is given by:

\text{EL} = \sum_{i=1}^{n} \text{PD}_i \times \text{EAD}_i \times \text{LGD}_i

= 7,000,000 \times 0.06 \times (1 - 0.8) + 9,000,000 \times 0.05(1 - 0.9)

= \`$129`,000

Where:
$\text{PD}_i$ = Probability of default
$\text{EAD}_i$ = Exposure at default
$\text{LGD}_i$ = Loss given default

We can then calculate the stressed expected loss:

\text{EL}_s = \sum_{i=1}^{n} \text{PD}^s_i \times \text{EAD}_i \times \text{LGD}_i

= 7,000,000 \times 0.12 \times (1 - 0.8) + 9,000,000 \times 0.18(1 - 0.9)

= \`$330`,000

Where:
$\text{PD}^s_i$ = Stressed probability of default

The stress loss for the loan portfolio is thus given by:

\text{EL}_s - \text{EL} = \`$330`,000 - \`$129`,000 = \`$201`,000

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UAnonymous

Last updated: July 5, 2026 at 07:27

$51,094.6

$330,000

$362,755.4

$201,000