Loss given default is the loss conditional on a default, measured as an amount or as a fraction of exposure under the chosen convention. In an independent marked default model the loss amounts are independent marks attached to the events of a Poisson process. Their raw second moment, not just their variance, controls the aggregate compound Poisson distribution variance.
Loss Given Default (LGD) is a key financial metric used in credit risk management and is one of the components used to calculate expected credit losses in lending and investment. LGD represents the amount of loss a lender incurs when a borrower defaults on a loan, expressed as a percentage of the total exposure at the time of default.
New to topics? Read the docs here!