Loss-given default (LGD) represents the portion of the non-recovered exposure in the case of the default. LGD is censored with two values, 0%, and 100%. Full recovery is associated with 0% LGD and zero recoveries are associated with 100% LGD. In most cases partial recovery takes place, hence LGD lies between 0% and 100%.
You can access the LGD Model section by clicking the LGD Model element from the LHS navigation menu of the application. Upon clicking this element, the LGD Model section is displayed as depicted in the following figure:
Figure 35: The LGD Model section
This page displays the existing LGD Model definitions in the LGD Model pane. This page also enables you to define a new LGD Model, edit the existing definitions, view the details of the existing definition, and copy existing definitions to create new ones. You can search for an existing definition by entering the LGD Model definition names in the Name field and by clicking the Search button. The list is filtered to display only those definitions that match the keyword.
The Search feature enables you to filter the list of existing definitions and find the definitions that you look for. To search for definitions, enter the keyword in the Definition Name field and click the Search button.
The list of LGD Model definitions in the LGD Model pane is refreshed and the definitions that match your search criteria are displayed.
The LGD Model page enables you to create new definitions. Perform the following procedure to create a new LGD Model definition:
1. Click the Add button, from the LGD Model pane.
The LGD Model Definition window is displayed.
2. Populated the fields as tabulated
Field |
Description |
|---|---|
LGD Model Definition Pane |
|
Name |
Enter a name for the definition. |
Description |
Enter a description for the definition |
|
Select a value from the drop-down list. The data for this drop-down is provided by the location dimension. |
Region |
Select a region code from the available list of regions. |
Term |
Enter the number of terms. Select either Months, Quarters, or Years. |
Historic Term |
Enter a value and select a value from the drop-down list. |
Customer Type |
Select either Retail or Corporate. |
Economic Variable |
Use the Move and Move All buttons to select the variables from the Available Variables field to the Selected Variables Pane. Use the Remove and Remove All buttons to deselect a variable and move it from the Selected Variables field to the Available Variables field. |
Feature Engineering Pane |
|
Predicted Term |
Enter a value and select a value from the drop-down list. |
Discount Rate Spread |
Enter a value in the percentage format. Decimal values are also supported in this field. |
Direct Expense for Recovery |
Select the slider to enable this feature. The following fields appear: · Number in Percentage - Enter a value in the percentage format. · Base - Select either Outstanding balance at default or Collateral value (As of date) · Spread - Select either At the end of the period or Spread evenly throughout the period. |
Data Manipulation to reduce noise in the data |
Select the Unstable Default Period and Minimum Period of recovery sliders to enable these features. When this feature is enabled a text box and a drop-down list appears. Enter a value and select a value from the drop-down list. |
To calculate assumption based LGD |
When this feature is enabled a text box and a drop-down list appears. Enter a value and select a value from the drop-down list. Additionally, the following fields appear: · Number in Percentage - Enter a value in the percentage format. · Base: Select either Outstanding balance at default or Collateral value (As of date) · Spread: Select either At the end of the period or Spread evenly throughout the period. |
Economic Variables - Tuning |
Select the required Economic Variable. |
3. Click Save.
The saved definition is displayed in the LGD Model pane of the LGD Model page.
You can edit the LGD Model definitions from the LGD Model page. Perform the following procedure to edit an existing LGD Model definition:
1. Select the checkbox adjacent to the LGD Model definition you want to edit, from the LGD Model grid.
2. Click Edit.
The LGD Model Edit window is displayed.
3. Update the required fields.
NOTE:
You cannot modify the Name, Product Code, and Region of the definition.
4. Click Save to save the definition details.
The saved definition is displayed in the LGD Model pane of the LGD Model page.
The Audit Trail section at the bottom of the definition page displays the Created By, Creation Date, Last Modified By, and Last Modification Date details. The User Comments section enables you to add additional information as comments.
You can view the LGD Model definitions from the LGD Model page. Perform the following procedure to view an existing LGD Model definition:
1. Select the checkbox adjacent to the LGD Model definition you want to view, from the LGD Model grid.
2. Click View.
The LGD Model - View window is displayed with the definition details.
NOTE:
You cannot edit any of the fields in View mode
The copy feature enables you to use an existing definition to create a new definition. To copy an existing definition, perform the following procedure:
1. Select the checkbox adjacent to the LGD Model definition you want to copy, from the LGD Model pane.
2. Click Copy.
The LGD Model Definition window is displayed.
3. Update the required fields.
4. Click Save to save the definition details.
The saved definition is displayed in the LGD Model pane of the LGD Model page.
You can delete an existing LGD definition from the LGD Model Summary window.
To delete one or more existing LGD Model definitions, perform the following procedure:
1. Select the checkbox(s) adjacent to the LGD Model definitions you want to delete.
2. Click the Delete button from the LGD Model grid.
A warning dialog is displayed.
3. Click Yes.
The selected definitions are removed from the LGD Model Summary window.