Loss given default

Loss given default is conditional on a defined default event and is distinct from the probability of that event. A simple LGD estimate is one minus the recovery rate when both use the same exposure, costs and timing basis. More detailed measures can incorporate collateral, legal costs, collection timing and discounted recoveries. Expected credit loss in a simplified one-period model combines probability of default, exposure at default and LGD, while actual losses may differ. Contractual priority and economic conditions influence recovery.