The loss given default calculator works out loss given default and loss severity from expected exposure and recovery rate. Enter what you have and the relationship is applied straight away, so you get the answer without working through the algebra yourself.
What Is the Loss Given Default Calculator?
The loss given default calculator takes expected exposure and recovery rate and turns them into loss given default and loss severity.
It is the kind of calculation you would otherwise do on the back of an envelope: mechanical, repeatable and easy to get subtly wrong without noticing.
How the Loss Given Default Figure Is Built
Each result is calculated from the ones before it, so the working is fully visible. That matters when the answer is going to be quoted to somebody else and you need to be able to explain where it came from.
The figures are exactly as good as the assumptions underneath them. Check the rates, the periods and the tax treatment before you rely on the result.
Reading the Result Sensibly
A small change in an input can move the result by much more than you would expect, particularly where the calculation divides by one of the figures you supplied. That is worth understanding before you rely on a figure.
For anything that will be committed to, write the inputs down beside the result. A number you can reproduce is worth far more than one you cannot explain.
A Worked Example
Working through an example, with expected exposure set to 10, recovery rate set to 5, the calculator returns loss severity of -4, and loss given default of -40. Substitute your own figures and the same steps produce the same kind of answer.
Frequently Asked Questions
What do I need to work out loss given default?
Enter expected exposure and recovery rate. The calculator then works through the relationship and reports loss given default and loss severity.
What does the loss given default actually calculate?
It takes expected exposure and recovery rate and converts them into loss given default and loss severity using the standard relationship for this problem. Each step is applied in turn, so every output is traceable back to the numbers you typed in.
How should I enter expected exposure?
Use the value you actually have, in the unit shown next to the field. Enter every value in the same unit system. The calculator assumes the figures you supply are consistent, so it cannot correct a mistake that happens before the calculation starts.
Do I have to fill in every field?
Only the fields a particular result depends on. If you leave one blank, the results that need it simply show a note instead of a number, and everything else still works.
Is the answer exact?
It is as exact as the formula and the inputs allow. The method itself is the standard one for this problem, so the only sources of error are the figures you enter and the precision you ask for.