Probability of default

Probability of default is a credit-risk input expressing the chance of a defined default event over a specified time horizon. Its interpretation depends on the definition of default, population and estimation method. It is not the same as the amount lost if default happens: exposure and recovery also matter. In a simplified one-period credit model, expected loss is probability of default multiplied by exposure at default and loss given default, under the stated assumptions. Estimates are uncertain and change with conditions.