Lesson 2 Calculating loss given default parameters

We will first calculate a stochastic variable for loss given default, that is, the amount that is not covered by any collateral once a certain loan has defaulted. For this, there is available historic data on tab “Recovery Data”. Once the workbook has been opened, go to the “Recovery Data” tab. In here, we find a historic list of 300 defaulted loans. The Recovery % column refers to the percentage of the loan that was recovered after it had defaulted. There is no reason to believe that the fundamental nature of this historic data has changed. Therefore, we will use a fitted distribution to this historic data as an adequate proxy to calculating loss given default.

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