Forward Exposure Calculations

The forward exposures and the PD up to the maturity of the account are considered and the Per Period Loss is calculated using Forward Exposure, Marginal PD, and LGD.

Note:

The Marginal PD for the entire lifetime of the account is considered.

After calculating the Per Period Loss, the CECL is calculated as the Present value of Per period losses.

The Effective Interest rate (EIR) is used for discounting while calculating the CECL.

Assigning the PD Values for Each Cash Flow Date or Bucket

The PD assignment happens within the CECL run as part of the Cashflow or forward exposure methodology. First, the cumulative PD matches the account's Term structure ID, Account's Rating, or DPD, and the bucket number is populated against the account's cash flow - based on the cash flow bucket. Next, based on the current and previous bucket numbers, the difference in the period, and the marginal PD values are computed.